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NORTH CAROLINA
DEPARTMENT OF REVENUE
2009 TAX LAW CHANGES
OFFICE OF THE ASSISTANT SECRETARY
FOR TAX ADMINISTRATION
501 N. Wilmington Street
PO Box 871
Raleigh, NC 27602- 0871
PREFACE
This document is designed for use by personnel in the North Carolina Department of
Revenue. It is available to those outside the Department as a resource document. It
gives a brief summary of the tax law:
• changes made by prior General Assemblies that take effect for tax year 2009, as
well as,
• changes made by the 2009 General Assembly, regardless of when they take
effect.
The local sales and use tax changes follow the State sales and use tax changes. The
document does not include law changes that affect the Department of Revenue but do
not affect the tax laws.
For further information on a tax law change, refer to the legislation that made the
change. Administrative rules, bulletins, directives, and other instructions issued by the
Department, as well as opinions issued by the Attorney General’s Office, may provide
further information on the application of a tax law change.
Michael Houser
Acting Assistant Secretary
for Tax Administration
TABLE OF CONTENTS
Section 1 - PERSONAL TAXES
Individual Income Tax
G. S. 105- 134.2A – Income Tax Surtax 1
G. S. 105- 134.6( b)( 17a) – Future Deduction for Bonus Depreciation Add- Back 2
G. S. 105- 134.6( b)( 20) – Future Deduction for Deferred Income Add- Back 2
G. S. 105- 134.6( c)( 8a) - Bonus Depreciation Add- Back 2
G. S. 105- 134.6( c)( 11) - Real Property Tax Add- Back by Nonitemizers 3
G. S. 105- 134.6( c)( 12) - Motor Vehicle Sales Tax Add- Back 3
G. S. 105- 134.6( c)( 13) – Addition to Federal Taxable Income for Amounts
Excluded as Deferred Income 3
G. S. 105- 134.6( c)( 14) – Add- Back of Deduction for Original Issue Discount on an
Applicable High Yield Discount Obligation 4
G. S. 105- 151.12 – Credit for Certain Real Property Donations 4
G. S. 105- 151.29 – Credit for Qualifying Expenses of a Production Company 4
G. S. 105- 151.31 – Refundable Earned Income Tax Credit Increased 5
Tax Credits for Qualified Business Investments
G. S. 105- 163.011( b),( b1),( c), and 105- 163.012( a) – Clarifying Changes 5
Withholding Tax
G. S. 105- 163.1 – Article 4A Withholding Definitions 5
G. S. 105- 163.3 – Requirement to Withhold on Contractors Identified by an Individual
Taxpayer Identification Number ( ITIN) 6
Job Development Investment Grant Program
G. S. 143B, Article 10, Part 2G 7
Lottery Act
G. S. 18C- 134( b) – Notification 7
G. S. 18C- 134( e) – Confidentiality 7
Section 2 - CORPORATE, EXCISE AND INSURANCE
TAXES
Privilege Taxes
G. S. 105- 40( 7A) – Clarifying Change 8
G. S. 105- 41( a)( 12) – Clarifying Change 8
G. S. 14- 344.1 – Internet Ticket Resellers, Sunset repealed 8
Tobacco Products Tax
Chapter 58, Article 92 – Fire Safe Cigarettes 9
G. S. 58- 92- 15( p) – Fire Safe Cigarettes Standards Clarification 9
G. S. 105- 113.4( 3) – Definition of Distributor 9
G. S. 105- 113.4( 6) – Definition of Manufacturer 9
Tobacco Products Tax
G. S. 105- 113.4( 14) – Technical Change 9
G. S. 105- 113.4D – Floor Tax Extended to Other Tobacco Products 10
G. S. 105- 113.5 – Tax on Cigarettes 10
G. S. 105- 113.35 – Tax on Other Tobacco Products 10
G. S. 105- 113.35( d1) – Sales Between Integrated Wholesale Dealers Prohibited 10
G. S. 105- 113.37( d) – Shipping Report 10
G. S. 105- 113.40A – Use of Tax Proceeds 10
Alcoholic Beverage License and Excise Taxes
G. S. 105- 113.80( a) – Beer Excise Tax Increase 11
G. S. 105- 113.80( b) – Wine Excise Tax Increase 11
G. S. 105- 113.80( c) – Liquor Excise Tax Increase 11
G. S. 105- 113.81A – Distribution to NC Wine & Grape Growers Council Repealed 11
G. S. 105- 113.82( a) – Distribution of Alcoholic Beverage Taxes 11
G. S. 105- 113.82 – Temporary Additional Reduction in Distribution of Alcoholic
Beverage Taxes 11
Franchise Tax
G. S. 105- 122( b1) – Technical Change 12
G. S. 105- 122( b)( 1a)– Billings in Excess of Costs 12
Business and Energy Tax Credits
G. S. 105- 129.15( 7) e. and G. S. 105- 129.15( 7) f. – Renewable Energy Property
Definition Expanded 12
G. S. 105- 129.16A( c)( 2) d. – Renewable Energy Property Credit Ceiling 12
G. S. 105- 129.16A( e) – Sunset for Renewable Energy Property 13
G. S. 105- 129.17( a) – Tax Election 13
Tax Credits for Growing Businesses
G. S. 105- 129.27( f) – No Double Credit 13
G. S. 105- 129.83( m) – No Double Benefit 13
G. S. 143B- 437.08( i) – Development Tier Designation 13
Corporation Income Tax
G. S. 105- 130.3B – Income Tax Surtax 14
G. S. 105- 130.4( h) – Conforming Change 14
G. S. 105- 130.4( i) – Conforming Change 14
G. S. 105- 130.4( s1) – Special Apportionment Formula for a Qualified Capital
Intensive Corporation 14
G. S. 105- 130.4( t1) – Technical Change 15
G. S. 105- 130.5( a)( 15a) – Bonus Depreciation Add- Back 15
G. S. 105- 130.5( a)( 21) – Deferred Cancellation of Indebtedness Add- Back 16
G. S. 105- 130.5( a)( 22) – Original Issue Discount on Applicable High Yield
Discount Obligation 16
G. S. 105- 130.5( b)( 21a) - Future Deduction for 50% First- Year Accelerated
Depreciation Add- Back 16
G. S. 105- 130.5( b)( 25) – Deduction for Deferred Cancellation of Indebtedness 16
G. S. 105- 130.16( a) – Conforming and Technical Changes 17
G. S. 105- 130.18 – Failure to File Returns 17
G. S. 105- 130.34( a) – Clarifying Change 17
G. S. 105- 130.47( b1) – Alternative Credit for Qualifying Expenses of a
Production Company 17
Corporation Income Tax
G. S. 105- 130.47( h) – Technical Change 18
Insurance Gross Premiums Tax
G. S. 58- 6- 25 – Insurance Regulatory Charge 18
G. S. 105- 228.5B – Transfer of Proceeds to High Risk Pool 18
General Administration
G. S. 105- 228.90( b)( b1) – Reference to the Internal Revenue Code Updated 18
G. S. 105- 259( b) – Disclosure of Selection Standards 19
G. S. 105- 259( b)( 20) – Disclosure to the Environmental Management Commission 19
G. S. 105- 259( b)( 39) – Disclosure to State Treasurer 19
Section 3 - SALES AND USE TAX
Sale and Use Tax
G. S. 105- 164.3 – Definitions 21
G. S. 105- 164.4( a) – Increase in State Sales Tax Rate 25
G. S. 105- 164.4( a)( 6b) – Tax on Digital Property 26
G. S. 105- 164.4( a)( 1j) – Tax on Electricity Sold to Manufacturers and Farmers 26
G. S. 105- 164.4B( d) – Sourcing Principles 27
G. S. 105- 164.6 – Complementary Use Tax 27
G. S. 105- 164.6A( a) – Voluntary Collection Agreements 27
G. S. 105- 164.7 – Retailer to Collect Sales Tax from Purchaser as Trustee for State 27
G. S. 105- 164.8 – Retailer’s Obligation to Collect Tax; Remote Sales Subject to Tax 28
G. S. 105- 164.11( e) – Reliance on Written Advice 28
G. S. 105- 164.13 – Exemptions and Exclusions 28
G. S. 105- 164.13B( a) – State Sales Tax Exemption for Certain Bakery Items 30
G. S. 105- 164.14( b) – Nonprofit Entities and Hospital Drugs 31
G. S. 105- 164.14( b)( 1) – Nonprofit Entities and Hospital Drugs 31
G. S. 105- 164.14( b)( 2a) – Nonprofit Entities and Hospital Drugs 31
G. S. 105- 164.14( c)( 23) – Certain Governmental Entities 31
G. S. 105- 164.14( j)( 2) n. – Certain Industrial Facilities 31
G. S. 105- 164.15A( a) – Effective Date of Tax Changes on Services and Items
Taxed at Combined General Rate 32
G. S. 105- 164.16 – Returns and Payment of Taxes 32
G. S. 105- 164.16( d) – Use Tax on Out of State Purchases 32
G. S. 105- 164.16( e) – Simultaneous State and Local Changes 32
G. S. 105- 164.22 – Record- Keeping Requirements, Inspection Authority, and
Effect of Failure to Keep Records 32
G. S. 105- 164.23 – Consumer Must Keep Records 33
G. S. 105- 164.24 – Separate Accounting Required 33
G. S. 105- 164.25 – Wholesale Merchant Must Keep Records 33
G. S. 105- 164.26 – Presumption that Sales are Taxable 33
G. S. 105- 164.27A( a) – Direct pay permit 33
G. S. 105- 164.28 – Certificate of Resale 33
G. S. 105- 164.28A( a) – Other exemption certificates 33
G. S. 105- 164.29( a) – Application for certificate of registration 34
G. S. 105- 164.31 – Complete Records Must Be Kept for Three Years 34
G. S. 105- 164.32 – Incorrect returns; estimate 34
G. S. 105- 164.44E – Transfer to the Dry- Cleaning Solvent Cleanup Fund 34
G. S. 105- 164.44F – Distribution of part of telecommunications taxes to cities 34
G. S. 105- 164.44G – Distribution of part of tax on modular homes 34
G. S. 105- 164.44I – Distribution of part of sales tax on video programming and
telecommunications 35
Chapter 323 of the 2007 Session Laws- Transfer for Wildlife Resources 35
Local and Sales and Use Tax
G. S. 105- 472( b)( 3) – Distribution Between Counties and Cities 35
G. S. 105- 487 – Use of Additional Tax Revenue by Counties 35
G. S. 105- 501 – Distribution of Second One- Half Percent Local Sales and Use Tax 35
G. S. 105- 502 – Use of Additional Tax Revenue by Counties 36
G. S. 105- 502– ( Effective October 1, 2009) Use of Additional Tax Revenue by Counties 36
G. S. 105- 505 – Local Government Sales and Use Tax for Public Transportation 36
G. S. 105- 506 – Definitions 36
G. S. 105- 507 – Limitations 37
G. S. 105- 508 – Local Election on Adoption 37
G. S. 105- 509 – Levy and Collection 37
G. S. 105- 510 – Distribution and Use of Taxes 37
G. S 105- 510.1 – Applicability 37
G. S. 105- 510.5 – Special Districts 37
G. S. 105- 510.6 – Limitations 37
G. S. 105- 510.7 – Distribution and Use of Taxes 38
G. S. 105- 510.8 – Local Election on Adoption of Sales and Use Tax 38
G. S. 105- 510.9 – Levy and Collection of Sales and Use Tax 38
G. S. 105- 510.10 – Local Election on Adoption of Sales and Use Tax 38
G. S. 105- 510.11 – Levy and Collection of Sales and Use Tax 39
G. S. 105- 510.12 – Applicability 39
G. S. 105- 510.13 – Limitations 39
G. S. 105- 510.14 – Local Election on Adoption of Sales and Use Tax 39
G. S. 105- 510.15 – Levy and Collection of Sales and Use Tax 39
G. S. 105- 510.16 – Distribution and Use of Taxes 40
G. S. 105- 515 through 105- 520 – Third One- Half Percent Local Sales and
Use Tax Repealed 40
G. S. 105- 522 – City Hold Harmless for Repealed Local Taxes 40
G. S. 105- 522( a)( 2) – City Hold Harmless for Repealed Local Taxes 41
G. S. 105- 523 – County Hold Harmless for Repealed Local Taxes 41
G. S. 105- 523( b)( 2) – County Hold Harmless for Repealed Local Taxes 42
G. S. 105- 523( b)( 3) – County Hold Harmless for Repealed Local Taxes 42
G. S. 105- 538 – Administration of Taxes 42
Chapter 323 of the 2007 Session Laws – Reduction of Third One- Half Percent Local
Sales and Use Tax 42
Chapter 323 of the 2007 Session Laws – Article 44 Title 42
Chapter 1096 of the Session Laws, as Amended – Mecklenburg First 1% Sales Tax Act 43
Highway Use Tax – Article 5A
G. S. 105- 187.3( b1) – Retail Value 43
G. S. 105- 187.6( a) – Exemptions 43
G. S. 105- 187.6( a) 7 – Exemptions 43
Scrap Tire Disposal Tax – Article 5B
G. S. 105- 187.19( b) – Use of Scrap Tire Tax Proceeds 44
Dry- Cleaning Solvent Tax – Article 5D
G. S. 105- 187.35 – Sunset of Dry- Cleaning Solvent Tax 44
Manufacturing Fuel and Certain Machinery and
Equipment – Article 5F
G. S. 105- 187.50 – Definitions 44
G. S. 105- 187.51A – Privilege Tax on Manufacturing Fuel 44
G. S. 105- 187.51C( c) – Forfeiture of Privilege Tax Imposed on Datacenter
Machinery and Equipment 45
Solid Waste Disposal Tax- Article 5G
G. S. 105- 187.63 – Use of Solid Waste Disposal Tax Proceeds 45
Section 4 – PROPERTY TAX
Property Tax
G. S. 105- 273( 3a) — Definition of Builder 46
G. S. 105- 273( 6) — Definition of Corporation 46
G. S. 105- 275 — Property Classified and Excluded From the Tax Base 46
G. S. 105- 277.1( d) — Homestead Exclusion 46
G. S. 105- 277.1B — Property Tax Homestead Circuit Breaker 46
G. S. 105- 277.1C — Disabled Veteran Property Tax Homestead Exclusion 47
G. S. 277.1D — Inventory Property Tax Deferral 47
G. S. 105- 277.1F( a) — Tax Deferral 47
G. S. 105- 277.14 — Repealed 48
G. S. 105- 277.17 — Clarify the Valuation of Community Land Trust Property 48
G. S. 105- 278.6( e) — Low or Moderate- Income Housing 48
G. S. 105- 282.1( a) — Application for Property Tax Exemption or Exclusion 48
G. S. 105- 282.1( a)( 2) c — Application for Property Tax Exemption or Exclusion 48
G. S. 105- 286 — Postpone a 2009 General Reappraisal 49
G. S. 105- 317.2 — Report on Transfers of Real Property 49
G. S. 105- 330 — Motor Vehicles 49
G. S. 105- 361( a) — Property Tax Certificate 50
G. S. 160A- 215.2 — Heavy Equipment Gross Receipts Tax in Lieu of Property Tax 50
G. S. 160A- 417 — Payment of Delinquent Property Taxes 50
G. S. 161- 31( b) — Payment of Delinquent Property Taxes 50
Section 5 – MOTOR FUELS
Motor Fuels
G. S. 105- 449.45( a) – Reporting Requirement 51
G. S. 105- 449.47A – Technical 51
Motor Fuels
G. S. 105- 449.72 – Bonding Requirement Exemption 51
G. S. 105- 449.80( a) – Fuel Tax Rate Floor 51
G. S. 105- 449.81 – Taxation of Fuel Grade Ethanol 51
G. S. 105- 449.83A – Clarifying 51
G. S. 105- 449.95 – Recodification 51
G. S. 105- 449.105B – Refund Filing Requirement 52
G. S. 105- 449.115 – Clarifying 52
G. S. 105- 449.121( b)( 2) – Technical 52
G. S. 105- 449.136 – Technical 52
1
PERSONAL TAXES
Individual Income Tax
G. S. 105- 134.2A – Income Tax Surtax:
This section was added to impose a surtax on a taxpayer’s North Carolina individual
income tax as computed under G. S. 105- 134.2. The surtax is due if North Carolina
taxable income is greater than the amount shown below for the taxpayer’s filing status:
Married filing jointly/ qualifying widow( er) $ 100,000
Head of household $ 80,000
Single $ 60,000
Married filing separately $ 50,000
The surtax is in addition to the income tax imposed by G. S. 105- 134.2 and is computed
by multiplying North Carolina income tax by the applicable percentage shown in the
table below.
Surtax Percentage Table
Applicable
Filing Status NC Taxable Income Percentage
Married Filing Jointly/ Greater than $ 100,000 but does not exceed $ 250,000 2%
Qualifying Widow( er) Greater than $ 250,000 3%
Head of Household Greater than $ 80,000 but does not exceed $ 200,000 2%
Greater than $ 200,000 3%
Single Greater than $ 60,000 but does not exceed $ 150,000 2%
Greater than $ 150,000 3%
Married Filing Separately Greater than $ 50,000 but does not exceed $ 125,000 2%
Greater than $ 125,000 3%
Notwithstanding G. S. 105- 163.15, no addition to tax may be made for tax years beginning
on or after January 1, 2009 and before January 1, 2011, with respect to an underpayment
of income tax to the extent the underpayment was created or increased by the surtax.
SECTION 1
2
( Effective for taxable years beginning on or after January 1, 2009 and expires for
taxable years beginning on or after January 1, 2011; SB 202, ss. 27A. 1.( b) and ( c); S. L.
09- 451.)
G. S. 105- 134.6( b)( 17a) – Future Deduction for Bonus Depreciation Add- Back: This
subdivision was amended to provide a deduction on future income tax returns for the
50% additional first- year depreciation deduction required to be added to federal taxable
income under G. S. 105- 134.6( c)( 8a). A taxpayer may deduct 20% of the total amount
of bonus depreciation added to federal taxable income in taxable year 2008 in each of
the first five taxable years beginning on or after January 1, 2009. For taxpayers who
made the addition for bonus depreciation on their 2009 returns, the deduction applies to
the first five taxable years beginning on or after January 1, 2010.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( e),
S. L. 09- 451.)
G. S. 105- 134.6( b)( 20) – Future Deduction for Deferred Income Add- Back: Under
the American Recovery and Reinvestment Act of 2009, P. L. 111- 5, certain taxpayers
may elect to defer reporting income from cancellation of debt in the current year and
instead report the income ratably over a five- year period beginning in 2014. The
General Assembly chose not to adopt this provision of federal law. Instead, G. S. 105-
134.6( c)( 13) requires an addition to federal taxable income in 2009 and 2010 for any
amount of the income that was deferred.
This section was added to provide a future deduction from federal taxable income for
the amount of income that was deferred under IRC section 108( i)( 1). If the deferred
income is added back on the 2009 or 2010 return, the deduction on the State return is
allowed ratably over a five- year period beginning in 2014.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( e),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 8a) - Bonus Depreciation Add- Back: The 2008 General Assembly
added this subdivision to require a taxpayer to add to federal taxable income a
percentage of the 50% first- year bonus depreciation deduction allowed for federal
income tax purposes under § 168( k) of the Internal Revenue Code under the Economic
Stimulus Act of 2008. The applicable percentage is 85% of the bonus depreciation for
the tax year 2008. Any taxpayer who claimed the bonus depreciation for federal
purposes for the tax year 2007 and whose North Carolina return also reflected that
deduction must also add back 85% of the deduction claimed for the tax year 2007 on
the 2008 tax return.
The subdivision was amended during the 2009 Session of the General Assembly to
extend the provision to include property placed in service before January 1, 2010.
Additionally, a taxpayer must add to federal taxable income 85% of the 50% additional
depreciation permitted pursuant to IRC § 168( n) under the Emergency Economic
3
Stabilization Act of 2008. The provision also applies to property placed in service after
December 31, 2007, but before January 1, 2010. Any taxpayer who claimed a § 168( n)
deduction for federal purposes on a 2008 return and whose North Carolina return also
reflected that deduction must add back 85% of the deduction claimed for the tax year
2008 on the 2009 return.
The adjustments do not result in a difference in basis of the affected assets for State
and federal income tax purposes.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 11) - Real Property Tax Add- Back by Nonitemizers: This
subdivision was added by the 2009 General Assembly to require a taxpayer to add to
federal taxable income the additional real property tax deduction claimed by a taxpayer
under IRC section 63( c)( 1)( C). This section of the Code allows a taxpayer who claims
the standard deduction to claim an additional deduction for real property taxes paid.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6. ( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 12) - Motor Vehicle Sales Tax Add- Back: The American Recovery
and Reinvestment Act of 2009, P. L. 111- 5, allows taxpayers to claim a deduction for the
sales or excise taxes paid for the purchase of new motor vehicles made on or after
February 17, 2009 and before January 1, 2010. The deduction is allowable as an
addition to the federal standard deduction under IRC section 63( c)( 1)( E) or as an
itemized deduction under section 164( a)( 6).
The General Assembly chose not to adopt this provision of federal law. Therefore, this
subdivision was added to require an addition to federal taxable income for the motor
vehicle sales and excise taxes deducted for federal income tax purposes under IRC
sections 63( c)( 1)( E) or 164( a)( 6).
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 13) – Addition to Federal Taxable Income for Amounts Excluded
as Deferred Income: Generally, when a debt is settled for less than the amount owed,
cancellation of indebtedness income is realized by the debtor and must be included in
the debtor’s federal gross income. However, the American Recovery and Reinvestment
Act of 2009, P. L. 111- 5, allows certain taxpayers to elect to recognize cancellation of
indebtedness income ratably over five years beginning in 2014, for specified types of
debt repurchased by a business after December 31, 2008 and before January 1, 2011.
The General Assembly chose not to follow this provision of federal law. Therefore, this
subdivision was added to require an addition to federal taxable income for the amount
of income deferred under IRC section 108( i)( 1) from the cancellation of indebtedness in
4
connection with reacquisition of an applicable debt instrument. However, G. S. 105-
134.6( b)( 20) was added to provide a future deduction from federal taxable income for
the deferred income added back on the 2009 or 2010 return. The deduction on the
State return is allowed ratably over a five- year period beginning in 2014.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 14) – Add- Back of Deduction for Original Issue Discount on an
Applicable High Yield Discount Obligation: The American Recovery and
Reinvestment Act of 2009, P. L. 111- 5, includes a provision suspending the rules for the
applicable high yield debt obligation ( AHYDO) under IRC section 163( e)( 5)( F) for certain
debts issued after September 30, 2008 and before January 1, 2010. As a result,
corporate and certain partnership debt that would have otherwise created deferred or
non- deductible interest will instead provide immediate tax deductions to the issuer
under general interest deductibility principles.
The General Assembly chose not to follow this provision of the Act. Therefore, an
addition to federal taxable income is required for the amount deducted on the federal
return.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 151.12 – Credit for Certain Real Property Donations: This section was
amended to clarify that the credit allowed to individuals and pass- through entities for
qualifying donations of real property applies to donations made during the taxable year.
( Effective August 7, 2009; SB 509, ss. 9.( d) and ( e), S. L. 09- 445.)
G. S. 105- 151.29 – Credit for Qualifying Expenses of a Production Company:
This section has been amended to allow a taxpayer that is a production company and
has qualifying expenses of at least two hundred fifty thousand dollars ($ 250,000) with
respect to a production, an alternative credit in lieu of the credit allowed under
subsection ( b) of this section.
Subsection ( b) allows a credit equal to 15% of the production company’s qualifying
expenses incurred with respect to the production. The alternative credit added in
subsection ( b1) allows a credit equal to 25% of the production company’s qualifying
expenses less the difference between the amount of tax paid on purchases subject to
tax under G. S. 105- 187.51 and the amount of sales and use tax that would have been
due had the purchases been subject to the sales and use tax at the combined rate
under G. S. 105- 164.3. A taxpayer must elect to claim the credit allowed under
subsection ( b) or subsection ( b1) at the time the return on which the credit is claimed is
filed. The election is binding.
5
The alternative credit allowed by subsection ( b1) is effective for taxable years beginning
on or after January 1, 2010, and applies to qualifying expenses occurring on or after
that date.
( Effective for tax years beginning on or after January 1, 2010; SB 943, ss. 2 and 3, S. L.
09- 529.)
G. S. 105- 151.31 – Refundable Earned Income Tax Credit Increased: This section,
which was added by the 2007 General Assembly, provided a refundable earned income
tax credit equal to 3.5% of the federal earned income tax credit under Section 32 of the
Internal Revenue Code. The credit was effective for tax years beginning on or after
January 1, 2008.
( Effective for taxable years beginning on or after January 1, 2008, and expires for
taxable years beginning on or after January 1, 2013; HB 1473, ss. 31.4( a) and ( b); S. L.
07- 323.)
This section was subsequently amended by the 2008 Session Laws to increase the
earned income tax credit from 3.5% to 5% of the amount of credit the individual qualified
for under section 32 of the Code. This change is effective for taxable years beginning
on or after January 1, 2009.
( Effective for taxable years beginning on or after January 1, 2009; HB 2436, s. 28.9.( a),
S. L. 08- 107.)
Tax Credits for Qualified Business Investments
G. S. 105- 163.011( b),( b1),( c), and 105- 163.012( a) – Clarifying Changes: These
subdivisions were rewritten to clarify that the maximum tax credit for investments made
in a single tax year cannot exceed $ 50,000 and that any amount of credit exceeding the
$ 50,000 limit is not considered “ unused” credit for purposes of carryover provisions of
the credit.
( Effective for tax years beginning on or after January 1, 2009; SB 509, ss. 9( a) and ( b),
S. L. 09- 445.)
Withholding Tax
G. S. 105- 163.1 – Article 4A Withholding Definitions: This section sets out new or
revised definitions to conform to the new withholding requirement on contractors
identified by an Individual Taxpayer Identification Number ( ITIN).
6
The definition of “ Compensation” was revised to include subdivision 1( b) stating that
compensation includes the “ consideration a payer pays to an ITIN holder who is a
contractor and not an employee for services performed in this State.”
The definition of “ Payer” was revised to include subdivision ( 10b) stating that a payer is
a person who, in the course of a trade or business, pays compensation to an “ ITIN
holder who is a contractor and not an employee for services performed in this State.”
The definition for “ contractor” in subdivision 2 was repealed.
The following definitions were added:
( 6a) ITIN contractor - An ITIN holder who performs services in this State for
compensation other than wages.
( 6b) ITIN holder – A person whose taxpayer identification number is an Individual
Taxpayer Identification Number ( ITIN).
( 7a) Nonresident contractor – Either of the following:
a. A nonresident individual who performs in this State for compensation other than
wages any personal services in connection with a performance, an
entertainment, an athletic event, a speech, or the creation of a film, radio, or
television program.
b. A nonresident entity that provides for the performance in this State for
compensation any personal services in connection with a performance, an
entertainment, an athletic event, a speech, or the creation of a film, radio, or
television program.
The definition of “ Payer” was revised to include subdivision ( 10b) stating that a payer is
a person who, in the course of a trade or business, pays compensation to “ an ITIN
holder who is a contractor and not an employee for services performed in this State.”
( Effective January 1, 2010; SB 1006, s. 1; S. L. 09- 476.)
G. S. 105- 163.3 – Requirement to Withhold on Contractors Identified by an
Individual Taxpayer Identification Number ( ITIN): This section was amended to
include a requirement to withhold income tax on contractors identified by an ITIN if the
contractor performs services in North Carolina for compensation other than wages. An
ITIN is issued by the IRS to a person who is required to have a taxpayer identification
number but does not have and is not eligible to obtain a social security number.
A payer who pays compensation other than wages of more than $ 1,500 to an ITIN
holder is required to withhold 4% of the compensation paid. The payer is required to file
a withholding return and pay the amount withheld on a quarterly, monthly, or
semiweekly basis pursuant to the requirements in G. S. 105- 163.6.
7
( Effective January 1, 2010; SB 1006, ss. 2 and 3; S. L. 09- 476.)
Job Development Investment Grant Program
G. S. 143B, Article 10, Part 2G – The Job Development Investment Grant Program is
an economic development tool for new and expanding businesses in North Carolina
whereby eligible companies selected by an Economic Investment Committee of State
officials are provided a grant equal to a certain percentage of the company’s income tax
withholding payments. The statute was amended to extend the authority of the
Economic Investment Committee to award new grants with eligible companies until
January 1, 2016 ( was January 1, 2010).
Technical changes were also made to clarify that the maximum liability for all grants
awarded in any single year is capped at $ 15 million and allows the Committee to reduce
the amount or term of a grant by formally approving a motion, instead of executing an
amendment to the grant agreement for businesses who fail to meet or comply with a
grant requirement. A grant shall not exceed twelve years starting the first year a grant
payment is made.
( Effective July 31, 2009; HB 1516; ss. 1 through 6, S. L. 09- 394.)
Lottery Act
G. S. 18C- 134( b) – Notification: This subsection was amended to provide that a
claimant agency seeking collection of a debt is automatically enrolled in the Lottery
Commission’s debt set- off program if it is enrolled in the Department of Revenue set- off
program. In addition, the Department of Revenue will provide to the Commission on a
periodic basis all updates to its debt set- off program.
( Effective July 27, 2009; HB 205, s. 9, S. L. 09- 357.)
G. S. 18C- 134( e) – Confidentiality: This subdivision was amended to make it lawful for
the Department of Revenue to exchange information with the Lottery Commission and a
debtor with respect to debt set- off requirements.
( Effective July 27, 2009; HB 205, s. 10, S. L. 09- 357.)
8
CORPORATE, EXCISE AND
INSURANCE TAXES
PRIVILEGE TAXES
G. S. 105- 40( 7A) – Clarifying Change: This subsection was rewritten to clarify that, for
purposes of exemption from the gross receipts tax on entertainment, a “ qualifying arts
organization” is any one whose primary purpose is to produce, present, or support
music, dance, theatre, literature, or visual arts and is exempt from income tax under
G. S. 105- 130.11( a)( 3).
( Effective August 28, 2009; HB 274, s. 5.1, S. L. 09- 550.)
G. S. 105- 41( a)( 12) – Clarifying Change: This subdivision was rewritten to provide that
the privilege license tax on home inspectors applies to an individual licensed under the
Home Inspector Licensure Act to clarify that associate home inspectors are also subject
to the tax. S. L. 2008- 206 imposed an annual State privilege license tax of $ 50 on a
licensed home inspector but it failed to mention associate home inspectors. Without
this change, an associate home inspector would be subject to local privilege license tax
in each city that levies the tax.
( Effective August 7, 2009; SB 509, s. 1, S. L. 09- 445.)
G. S. 14- 344.1 – Internet Ticket Resellers, Sunset repealed: The 2008 General
Assembly enacted S. L. 2008- 206 to legislate the activity of reselling tickets to
admissions over the Internet at more than the face value of the ticket. The amusement
gross receipts tax is not imposed on the resale of tickets. The Internet seller of the
tickets is required to file a monthly report with the Department of Revenue. The
legislation was set to expire June 30, 2009. This legislation removed the sunset.
( Effective July 6, 2009; HB 309, s. 1, S. L. 09- 255 .)
SECTION 2
9
TOBACCO PRODUCTS TAX
Chapter 58, Article 92 – Fire Safe Cigarettes: This new article adopts a cigarette fire
safety standard already implemented in New York and other states as a safety measure
to reduce the likelihood that cigarettes will cause fires and result in deaths, injuries, and
property damage. The manufacturer must test cigarettes and file a certification with the
Department of Insurance that the cigarettes meet the safety standards. Each package
must be marked to indicate compliance with the safety act. Inventory on hand is
exempt from the marking requirement. However, the retailer or wholesaler must have
documentation to confirm that the cigarettes were purchased prior to the effective date
and that the quantity purchased was comparable to the cigarettes purchased during the
same period of the prior year. The act requires distributors, agents, and retail dealers to
submit to inspection of the products by the Commissioner of Insurance, the Secretary of
Revenue, or the Attorney General, and their employees. The act allows for seizure of
cigarettes in violation of this act by any law enforcement personnel or duly authorized
representative of the Commissioner of Insurance. Seized contraband is to be turned
over to the Department of Revenue for destruction after the manufacturer is given the
opportunity to inspect the cigarettes.
( Effective January 1, 2010; HB 1785, s. 1, S. L. 07- 451.)
G. S. 58- 92- 15( p) – Fire Safe Cigarettes Standards Clarification: This subsection
was amended to clarify that the standards the Commissioner is to use to implement
Article 58 are in accordance with the “ New York Fire Safety Standards for Cigarettes” as
it read on August 24, 2007.
( Effective January 1, 2010; SB 884, s. 1, S. L. 09- 490.)
G. S. 105- 113.4( 3) – Definition of Distributor: This subsection was amended to
remove from the definition of distributor “ one who causes cigarettes to be manufactured
or produced.”
( Effective September 1, 2009; SB 777, s. 1, S. L. 09- 559.)
G. S. 105- 113.4( 6) – Definition of Manufacturer: This subsection was amended to
expand the definition of manufacturer to include a person who manufactures or
contracts with another person to produce tobacco products and is the exclusive
purchaser of the products manufactured pursuant to that contract.
( Effective September 1, 2009; SB 777, s. 1, S. L. 09- 559.)
G. S. 105- 113.4( 14) – Technical Change: This subsection was rewritten to place the
requirements for meeting the definition of a wholesale dealer into two separate
subdivisions within the subsection.
( Effective September 1, 2009; SB 777, s. 1, S. L. 09- 559.)
10
G. S. 105- 113.4D – Floor Tax Extended to Other Tobacco Products: This new
section recodifies provisions formerly in G. S. 105- 113.7 that required a distributor
holding an inventory of cigarettes on the date of a rate increase to remit to the Secretary
within 20 days after the effective date of the increase an additional tax on that inventory
based on the difference between the former rate and the increased tax rate. As
rewritten, the provision applies to other tobacco products as well as cigarettes.
( Effective September 1, 2009; SB 202. s. 27A. 5.( b), S. L. 09- 451.)
G. S. 105- 113.5 – Tax on Cigarettes: This section was rewritten to increase the tax on
cigarettes from 1.75 cent to 2.25 cents per individual cigarette or 45 cents per pack of
twenty.
( Effective September 1, 2009; SB 202. s. 27A. 5.( a), S. L. 09- 451.)
G. S. 105- 113.35 – Tax on Other Tobacco Products: Subsection ( a) was rewritten to
increase the tax on other tobacco products from 10% to 12.8% of the cost price of the
products. Subsection ( e) was recodified as G. S. 105- 113.40A.
( Effective September 1, 2009; SB 202. s. 27A. 5.( c), S. L. 09- 451.)
G. S. 105- 113.35( d1) – Sales Between Integrated Wholesale Dealers Prohibited:
This new subdivision prohibits an integrated wholesale dealer from selling, borrowing,
loaning, or exchanging non- tax- paid other tobacco products to, from, or with other
integrated wholesales dealers.
( Effective September 1, 2009; SB 777, s. 2, S. L. 09- 559.)
G. S. 105- 113.37( d) – Shipping Report: This new subdivision requires any person who
transports other tobacco products on the public highways, roads, or streets of this State
to file a report, upon notice of the Secretary, in a form prescribed by and containing the
information required by the Secretary.
( Effective September 1, 2009; SB 777, s. 3, S. L. 09- 559.)
G. S. 105- 113.40A – Use of Tax Proceeds: This new section recodifies provisions
formerly in G. S. 105- 113.35( e). However, the new statute contains an error. As written,
net proceeds of the tax collected under this Article would be allocated between the
General Fund and the University Cancer Research Fund, resulting in part of the tax on
other tobacco products (“ OTP”) and all of the tax collected on cigarettes being credited
to the University Cancer Research Fund. However, the legislature intended the statute
to read “ collected under this “ Part.” The intent of the section is to credit 3% of the cost
price of other tobacco products to the General Fund and the remainder of the net tax on
other tobacco products to the University Cancer Research Fund. The Department will
11
administer the statute as the legislature intended and seek a technical correction during
the next legislative session.
( Effective September 1, 2009; SB 202. s. 27A. 5.( d), S. L. 09- 451.)
ALCOHOLIC BEVERAGE LICENSE AND EXCISE TAXES
G. S. 105- 113.80( a) – Beer Excise Tax Increase: This subsection was rewritten to
increase the excise tax on malt beverages from 53.177 cents per gallon to 61.71 cents
per gallon.
( Effective for malt beverages first sold or otherwise disposed of on or after September 1,
2009; SB 202. s. 27A. 4.( a), S. L. 09- 451.)
G. S. 105- 113.80( b) – Wine Excise Tax Increase: This subsection was rewritten to
increase the excise tax on unfortified wine from 21 cents per liter to 26.34 cents per liter
and to increase the excise tax on fortified wine from 24 cents per liter to 29.34 cents per
liter.
( Effective for wine first sold or otherwise disposed of on or after September 1, 2009; SB
202. s. 27A. 4.( a), S. L. 09- 451.)
G. S. 105- 113.80( c) – Liquor Excise Tax Increase: This subsection was rewritten to
increase the excise tax on liquor sold in ABC stores from 25 percent to 30 percent of the
price of liquor.
( Effective September 1, 2009; SB 202, s. 27A. 4.( a), S. L. 09- 451.)
G. S. 105- 113.81A – Distribution to NC Wine & Grape Growers Council Repealed:
This section requiring the Department to transfer a designated amount of the excise tax
on unfortified wine to the NC Wine & Grape Growers Council is repealed.
( Effective July 1, 2009; SB 202, s. 14.19( f), S. L. 09- 451.)
G. S. 105- 113.82( a) – Distribution of Alcoholic Beverage Taxes: Subdivision ( 1) of
this subsection was rewritten to reduce the amount of excise tax on malt beverages
distributed to local governments from 23.75% to 20.47%. Subdivision ( 2) was rewritten
to reduce the amount of excise tax on unfortified wine distributed to local governments
from 62% to 49.44%. Subdivision ( 3) was rewritten to reduce the amount of excise tax
on fortified wine distributed to local governments from 22% to 18%.
( Effective September 1, 2009; SB 202. s. 27A. 4.( b), S. L. 09- 451.)
G. S. 105- 113.82 – Temporary Additional Reduction in Distribution of Alcoholic
Beverage Taxes: Notwithstanding the percentages of the excise taxes distributable to
12
local governments set out in G. S. 105- 113.82, for the excise taxes collected on
alcoholic beverages during the 12- month period ending March 31, 2010, the
percentages to be distributed to local governments are as follows:
Malt beverages – 7.24%
Unfortified wine – 18%
Fortified wine – 6.49%
( Effective September 1, 2009; SB 202. s. 27A. 4.( c), S. L. 09- 451.)
FRANCHISE TAX
G. S. 105- 122( b1) – Technical Change: This section was rewritten to move the
definitions from subsection ( b) to a newly created subsection ( b1). The current
subsection ( b) contains two different subdivision lists within the same subsection. This
change puts the defined terms, listed by subdivisions, into a new subsection.
( Effective August 7, 2009; SB 509, s. 2, S. L. 09- 445.)
G. S. 105- 122( b)( 1a)– Billings in Excess of Costs: This subdivision was added to
specifically exempt billings in excess of costs from surplus and undivided profits, thus
excluding the amount from the computation of the franchise tax capital stock base.
( Effective for taxable years beginning on or after January 1, 2010; SB 367, s. 1, S. L. 09-
422. Note: Franchise tax levied under G. S. 105- 122 is for the income year of the
corporation in which it becomes due.)
BUSINESS AND ENERGY TAX CREDITS
G. S. 105- 129.15( 7) e. and G. S. 105- 129.15( 7) f. – Renewable Energy Property
Definition Expanded: These two subdivisions were added to expand the definition of
renewable energy property to include geothermal heat pumps that use the ground or
ground water as a thermal energy source to heat or cool a structure and geothermal
equipment that uses internal heat from the earth as a substitute for traditional energy for
heating water or active space heating and cooling.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 1, S. L. 09-
548 .)
G. S. 105- 129.16A( c)( 2) d. – Renewable Energy Property Credit Ceiling: This
subdivision was added to establish a ceiling of $ 8,400 per installation of a geothermal
heat pump or geothermal equipment in residential property.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 2, S. L. 09-
548 .)
13
G. S. 105- 129.16A( e) – Sunset for Renewable Energy Property: This subsection was
amended to extend the sunset. The credit will expire for renewable energy property
placed in service on or after January 1, 2016.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 2, S. L. 09-
548 .)
G. S. 105- 129.17( a) – Tax Election: This section was rewritten to allow the credit for
renewable energy property to be claimed against the franchise tax levied in Article 3,
the income taxes levied in Article 4, or the gross premiums tax levied in Article 8B. All
other credits allowed under Article 3B are limited to the franchise tax levied under Article
3 or the income taxes levied under Article 4.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 3, S. L. 09-
548 .)
TAX CREDITS FOR GROWING BUSINESSES
G. S. 105- 129.27( f) – No Double Credit: This subsection was rewritten to clarify that a
recycling facility that qualifies for a credit under Article 3C is prohibited from claiming
any tax credits under Articles 3A or 3J. Reference to Article 3J was missing from the
original statute.
( Effective for taxable years beginning on or after January 1, 2007; SB 509, s. 3.( a), S. L.
09- 445.)
G. S. 105- 129.83( m) – No Double Benefit: This subsection was enacted to prohibit a
corporation that qualifies for the new special apportionment formula for qualified capital
intensive corporations in G. S. 105- 130.4( s1) from also claiming any tax credits under
Article 3J with respect to the facility that caused the corporation to be a qualified capital
intensive corporation.
( Effective for taxable years beginning on or after January 1, 2010; SB 575, s. 3, S. L. 09-
54.)
TIER DESIGNATION
G. S. 143B- 437.08( i) – Development Tier Designation: This section was amended by
adding a new subsection to designate all industrial seafood parks created under Article
23C of Chapter 113 as development tier one.
( Effective August 26, 2009 and expires July 1, 2012; HB 1500, s. 1, S. L. 09- 505.)
14
CORPORATION INCOME TAX
G. S. 105- 130.3B – Income Tax Surtax: This new section imposes a 3% surtax on tax
payable by a corporation. The surtax is in addition to the income tax levied under G. S.
105- 130.3 and is computed on tax before any available tax credits. No addition to tax
may be made pursuant to G. S. 105- 163.41 to the extent the underpayment of estimated
tax is due to the addition of the surtax.
( Effective for taxable years beginning on or after January 1, 2009 and expires for
taxable years beginning on or after January 1, 2011; SB 202, s. 27A. a. 1( a), S. L. 09-
451.)
G. S. 105- 130.4( h) – Conforming Change: This subdivision was rewritten to replace
the term “ nonbusiness” with the term “ nonapportionable” when referring to a
“ nonbusiness activity.” This conforms to the changes made by the 2002 General
Assembly.
( Effective August 7, 2009; SB 509, s. 4, S. L. 09- 445.)
G. S. 105- 130.4( i) – Conforming Change: This subsection was rewritten to conform
with the new special apportionment provision for qualified capital intensive corporations
in G. S. 105- 130.4( s1).
( Effective for taxable years beginning on or after January 1, 2010; SB 575, s. 2, S. L. 09-
54.)
G. S. 105- 130.4( s1) – Special Apportionment Formula for a Qualified Capital
Intensive Corporation: This subsection was enacted to encourage the location and
expansion of capital intensive companies in North Carolina by providing for
apportionment of corporate income based solely on the sales factor for companies that
meet certain investment and quality jobs criteria. A qualified capital intensive
corporation is a corporation that meets all six of the following conditions:
the corporation’s property factor exceeds 75% of the sum of its property, payroll, and
sales factors, with the sales factor added twice, for the current year or the corporation’s
average property factor for the preceding three years exceeds 75% of the average sum
of the factors for those years;
the Secretary of Commerce makes a written determination that the corporation has
invested or is expected to invest at least one billion dollars in private funds to construct
a facility in this State within nine years after the time the construction begins. The costs
of acquiring and improving land for the facility, costs for renovations or repairs for
existing buildings, and costs of equipping or reequipping the facility are all included as
costs of construction;
the corporation maintains the average number of employees it has at the facility during
the first two years after the facility is placed in service for the remainder of the time in
which the corporation must complete the investment;
15
the facility is located in a county that was designated as a development tier one or two
area at the time construction began;
the corporation satisfies the wage standard prescribed under G. S. 105- 129.83( c) at the
facility;
the corporation provides health insurance as prescribed in G. S. 105- 129.83( d) for all its
full- time employees at the facility.
If the corporation fails to invest one billion dollars in private funds within nine years, the
benefit of the special apportionment formula expires and the corporation must apportion
income as otherwise required under G. S. 105- 130.4.
( Effective for taxable years beginning on or after January 1, 2010; SB 575, s. 1, S. L. 09-
54. If no corporation has qualified as a qualified capital intensive corporation prior to
January 1, 2019, then G. S. 105- 130.4( s1) is repealed effective for taxable years
beginning on after January 1, 2019; SB 575, s. 6, S. L. 09- 54.)
G. S. 105- 130.4( t1) – Technical Change: This section was rewritten to reinstate
language that was omitted from the statute when the tax appeal process was reformed
by S. L. 2007- 491 ( SB 242). The reinstated language prohibits a corporation from using
an alternative apportionment method unless granted permission to do so in writing from
the Secretary. Any return filed using an apportionment method other than the statutorily
prescribed method that is not authorized by the Secretary is not a lawful return.
( Effective August 7, 2009; SB 509, s. 5, S. L. 09- 445.)
G. S. 105- 130.5( a)( 15a) – Bonus Depreciation Add- Back: The 2008 General
Assembly added this subdivision to require a taxpayer to add to federal taxable income
a percentage of the 50% first- year bonus depreciation deduction allowed for federal
income tax purposes under § 168( k) of the Internal Revenue Code under the Economic
Stimulus Act of 2008. The applicable percentage is 85% of the bonus depreciation for
the tax year 2008. Any taxpayer who claimed the bonus depreciation for federal
purposes for the tax year 2007 and whose North Carolina return also reflected that
deduction must also add back 85% of the deduction claimed for the tax year 2007 on
the 2008 tax return.
The subdivision was amended during the 2009 Session of the General Assembly to
extend the provision to include property placed in service before January 1, 2010.
Additionally, a taxpayer must add to federal taxable income 85% of the 50% additional
depreciation permitted pursuant to IRC § 168( n) under the Emergency Economic
Stabilization Act of 2008. The provision also applies to property placed in service after
December 31, 2007, but before January 1, 2010. Any taxpayer who claimed a § 168( n)
deduction for federal purposes on a 2008 return and whose North Carolina return also
reflected that deduction must add back 85% of the deduction claimed for the tax year
2008 on the 2009 return.
16
The adjustments do not result in a difference in basis of the affected assets for State
and federal income tax purposes.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( c),
S. L. 09- 451.)
G. S. 105- 130.5( a)( 21) – Deferred Cancellation of Indebtedness Add- Back: This new
subdivision requires a taxpayer to add to federal taxable income the amount of income
deferred under IRC § 108( i)( 1) pursuant to the American Recovery and Reinvestment
Act of 2009. The federal act permits the taxpayer to recognize cancellation of
indebtedness income over a five year period beginning in 2014. By decoupling from the
federal provision, the State requires the taxpayer to recognize the indebtedness income
in the current year, and provides for the deduction from federal taxable income of the
deferred amount beginning in 2014 ( see G. S. 105- 130.5( b)( 25)).
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( c),
S. L. 09- 451.)
G. S. 105- 130.5( a)( 22) – Original Issue Discount on Applicable High Yield Discount
Obligation: This new subdivision requires a taxpayer to add to federal taxable income
the amount deducted pursuant to IRC § 163( c)( 5)( F). As part of The American Recovery
and Reinvestment Act of 2009, rules limiting corporate deductions of original issue
discount on high- yield discount obligations were suspended, creating deductions for the
issuer. The General Assembly chose to decouple from this federal provision.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( c),
S. L. 09- 451.)
G. S. 105- 130.5( b)( 21a) - Future Deduction for 50% First- Year Accelerated
Depreciation Add- Back: This subdivision was amended to provide a deduction from
future income tax returns for the 50% additional first- year depreciation deduction
required to be added to federal taxable income under G. S. 105- 130.5( a)( 15a). A
taxpayer may deduct 20% of the total amount of accelerated depreciation added to
federal taxable income in the tax year 2008 in each of the first five taxable years
beginning on or after January 1, 2009. For a taxpayer who made the addition for
accelerated depreciation in 2009, the deduction applies to the first five taxable years
beginning on or after January 1, 2010.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( d),
S. L. 09- 451.)
G. S. 105- 130.5( b)( 25) – Deduction for Deferred Cancellation of Indebtedness: This
new subdivision provides a deduction from federal taxable income for deferred
cancellation of indebtedness income subsequently included in federal taxable income
under IRC § 108( i)( 1) pursuant to the American Recovery and Reinvestment Act of
2009. The deduction applies to taxable years beginning on or after January 1, 2014.
17
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( d),
S. L. 09- 451.)
G. S. 105- 130.16( a) – Conforming and Technical Changes: This section was
amended by the 2008 General Assembly to conform the corporate officers authorized to
sign a corporate income tax return with those authorized by statute to sign a franchise
tax return. Under prior law, the president, vice- president, treasurer, assistant treasurer,
secretary, or assistant secretary was authorized to sign the return. As amended, the
assistant treasurer, secretary, or assistant secretary are deleted and replaced by the
chief financial officer. The 2009 General Assembly corrected an error in the effective
date of the 2008 legislation.
( Effective for taxable years beginning on or after January 1, 2009; SB 1704, s. 4.( a),
S. L. 08- 134. Correction: Effective for taxable years beginning on or after January 1,
2008; SB 509, s. 6, S. L. 2009- 445.)
G. S. 105- 130.18 – Failure to File Returns: This statute is repealed because it is an
unnecessary statute in the corporate income tax laws. The Department of Revenue
does not ask taxpayers to file a ' supplemental' return. A taxpayer files either an original
return or an amended return. If the Department determines additional tax is due, it
proposes an assessment.
( Effective August 7, 2009; SB 509, s. 7, S. L. 09- 445.)
G. S. 105- 130.34( a) – Clarifying Change: This section was amended to clarify that the
cap for donations of real property for conservation purposes is limited to $ 500,000
regardless of the number of qualifying donations made during the taxable year.
( Effective August 7, 2009; SB 509, s. 9.( c), S. L. 09- 445.)
G. S. 105- 130.47( b1) – Alternative Credit for Qualifying Expenses of a Production
Company: This new subsection was added to provide an election in computing the
amount of credit for qualifying expenses. In lieu of the existing 15% credit, the taxpayer
may choose to compute the credit at 25%. However, it must forfeit the benefit of the
special sales tax rate imposed on mill machinery under G. S. 105- 187.51 by subtracting
from the amount of credit computed at 25% the difference between the amount of tax
paid on purchases subject to the mill machinery rate of 1% and the amount of sales or
use tax that would have been due had the purchases been subject to the combined
sales tax rate. The credit is based on all expenses incurred for the production, not just
those incurred during the taxable year. The election is binding.
( Effective for taxable years beginning on or after January 1, 2010; SB 943, s. 1, S. L. 09-
529.)
18
G. S. 105- 130.47( h) – Technical Change: This subsection was rewritten to replace the
term “ claimed” with the term “ taken” with regard to the report the Department is required
to publish by May 1 of each year concerning the production company credit.
( Effective August 7, 2009; SB 509, s. 8.( a), S. L. 09- 445.)
INSURANCE GROSS PREMIUMS TAX
G. S. 58- 6- 25 – Insurance Regulatory Charge: The percentage rate to be used in
calculating the insurance regulatory charge under this statute is 5.5% for the 2009
calendar year and 6% for the 2010 calendar year. This charge is a percentage of gross
premiums tax liability.
( Effective August 7, 2009; SB 202, ss. 21.1.( a) - 21.1.( b), S. L. 09- 451.)
G. S. 105- 228.5B – Transfer of Proceeds to High Risk Pool: This section was
rewritten to extend the date by which the Treasurer must transfer a designated amount
of gross premiums tax to the North Carolina Health Insurance Risk Pool Fund to
November 1 of each year. The change was necessary to insure that sufficient funds
had been collected in order to make the transfer.
( Effective August 7, 2009; SB 509, s. 10, S. L. 09- 445.)
GENERAL ADMINISTRATION
G. S. 105- 228.90( b)( b1) – Reference to the Internal Revenue Code Updated: This
subdivision was amended in two steps. The first amendment updated the reference to
the Internal Revenue Code from May 1, 2008 to May 1, 2009, but not including the
amendments made to section 63( c) of the Code by section 3012 of P. L. 110- 289. Any
amendments to the Internal Revenue Code enacted after May 1, 2008 that increase
North Carolina taxable income for the 2008 taxable year become effective for taxable
years beginning on or after January 1, 2009. This amendment conforms North Carolina
tax law to the provisions of the federal Farm/ Military Tax Relief Acts of 2008, P. L. 110-
234, enacted on May 22, 2008; the Housing Assistance Tax Act of 2008, P. L. 110- 289,
enacted on July 30, 2008; the Emergency Economic Stabilization Act of 2008, P. L. 110-
343, enacted on October 3, 2008; and the American Recovery & Reinvestment Act of
2009, P. L. 111- 5, enacted on February 17, 2009, with the exception of the federal
provision that allows a taxpayer who claims the standard deduction an additional
deduction from gross income for state and local real property taxes. The first
amendment is effective for taxable years beginning on or after January 1, 2008.
Note: This implies that, with the exception of the real property tax deduction for
standard deduction filers, North Carolina has conformed to all of the tax provisions of
19
the four federal Acts. However, separate provisions in G. S. 105- 134.6( c) and G. S. 105-
130.5( a) result in the State effectively not conforming to the federal deduction for motor
vehicle sales taxes; deferred income excluded under Code section 108( i)( 1); and
expenses resulting from applicable high yield debt obligations. In addition, North
Carolina partially decouples from the extension of the IRC § 168( k) additional bonus
depreciation and the adoption of the IRC § 168( n) additional bonus depreciation
deduction for disaster related property. A taxpayer is required to make an addition to
federal taxable income equal to 85% of the deduction claimed on the federal return but
subsequently deducts the amount added back ratably over a five- year period.
The second amendment did not change the date reference, but did delete the language
regarding the exception for the real property tax deduction. This implies that North
Carolina has conformed to the federal provision that allows a taxpayer an additional
standard deduction for real property taxes paid. However, a second provision in G. S.
105- 134.6( c) results in the State effectively not conforming to the federal additional
standard deduction for real property taxes. The second amendment is effective for
taxable years beginning on or after January 1, 2009.
Note: The two- step change regarding the real property tax deduction was necessary
to permit the State to not follow the real property tax deduction provision without
retroactively increasing a taxpayer’s income tax liability. The real property tax deduction
was effective for taxable year 2008. If the General Assembly had adopted the federal
changes and then required an addition to federal taxable income for 2008, the
taxpayer’s tax liability would have been retroactively increased because the law change
was not enacted until 2009.
( First amendment effective for taxable years beginning on or after January 1, 2008; SB
202, s 27A. 6.( a); S. L. 09- 451; second amendment effective for taxable years beginning
on or after January 1, 2009; SB 202, s 27A. 6.( b), S. L. 09- 451.)
G. S. 105- 259( b) – Disclosure of Selection Standards: This subsection was rewritten
to clarify that standards used for the selection of returns for examination and data used
for determining the standards may not be disclosed for any purpose.
( Effective August 7, 2009; SB 509, s. 39, S. L. 09- 445.)
G. S. 105- 259( b)( 20) – Disclosure to the Environmental Management Commission:
This subdivision was amended to clarify that the subdivision is repealed when Part 6 of
Article 21A of Chapter 143 of the General Statutes expires.
( Effective August 26, 2009; SB 700, s. 10, S. L. 09- 483.)
G. S. 105- 259( b)( 39) – Disclosure to State Treasurer: This new subdivision permits
the Department to provide to the State Treasurer information it requests about whether
a unit of local government has timely filed a withholding report, has been charged a
20
penalty, or has paid a penalty for purposes of determining compliance with the Local
Government Finance Act.
( Effective July 10, 2009; SB 691, s. 1, S. L. 09- 283.)
21
SALES AND USE TAX DIVISION
SALES AND USE TAX
G. S. 105- 164.3 – Definitions: The 2009 General Assembly added and revised multiple
definitions. The changes and their effective dates are as follows:
Bundled transaction – ( 1b). This definition is recodified as ( 1i).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Business – ( 1d). This definition is recodified as ( 1k) and is amended to modernize the
language. There is no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Audio work – ( 1e). The term is defined as “ a series of musical, spoken, or other
sounds, including a ringtone.” This definition is added as a result of the imposition of
tax on certain digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Audiovisual work – ( 1g). The term is defined as “ a series of related images and any
sounds accompanying the images that impart an impression of motion when shown in
succession.” This definition is added as a result of the imposition of tax on certain
digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Cable service – ( 1f). This definition is recodified as ( 1m).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
SECTION 3
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Consumer – ( 5). This definition is amended to modernize language and to add digital
property and a service as items a person may store, use, or otherwise consume.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Custom computer software – ( 5c). This definition is recodified as ( 5b).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Delivered electronically – ( 5d). This definition is repealed.
( Effective January 1, 2010; SB 202, s. 27A. 3.( d), S. L. 09- 451.)
Datacenter – ( 5c). This definition is added as a result of the rewritten exemption under
G. S. 105- 164.13( 43a). The term is defined as “ a facility that provides infrastructure for
hosting or data processing services and that has power and cooling systems that are
created and maintained to be concurrently maintainable and to include redundant
capacity components and multiple distribution paths serving the computer equipment at
the facility. Although the facility must have multiple distribution paths serving the
computer equipment, a single distribution path may serve the computer equipment at
any one time. The following definitions apply in this subdivision: ( a) Concurrently
maintainable – Capable of having any capacity component or distribution element
serviced or repaired on a planned basis without interrupting or impeding the
performance of the computer equipment ( b) Multiple distribution paths – A series of
distribution paths configured to ensure that failure on one distribution path does not
interrupt or impede other distribution paths ( c) Redundant capacity components –
Components beyond those required to support the computer equipment.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Digital code – ( 7a). The term is defined as “ a code that gives a purchaser of the code
a right to receive an item by electronic delivery or electronic access. A digital code may
be obtained by an electronic means or by a tangible means. A digital code does not
include a gift certificate or a gift card.” This definition is added as a result of the
imposition of tax on certain digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Direct mail – ( 7a). This definition is recodified as ( 7c).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Eligible internet datacenter – ( 8e). This definition is amended to correct grammatical
issues. There is no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
23
Engaged in business – ( 9). This definition is amended to clarify that the term applies
to services and digital property. In addition, “ mail order” is replaced with “ remote sale.”
The definition also is reorganized for ease of reading.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Gross sales – ( 12). This definition is amended to add digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
In this ( the) State – ( 14). This definition is amended to modernize language. There is
no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Information service – ( 14a). The term is defined as “ a service that generates,
acquires, stores, processes, or retrieves data and information and delivers it
electronically to or allows electronic access by a consumer whose primary purpose for
using the service is to obtain the processed data or information.” This definition is
added as a result of the imposition of tax on certain digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Load and leave – ( 17a). This definition is repealed.
( Effective January 1, 2010; SB 202, s. 27A. 3.( d), S. L. 09- 451.)
Mail order sale – ( 18). This definition is repealed.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Net taxable sales – ( 24). This definition is amended to modernize language. There is
no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Nonresident retail or wholesale merchant – ( 25). This definition is amended to
clarify that the term also applies to services and digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Person – ( 26). This definition is amended to modernize language. There is no
substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
24
Purchase – ( 32). This definition is amended to clarify that the term also applies to
services and digital property. In addition, language is modernized.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Remote sale – ( 33c). The term “ Remote sale” is defined as “ a sale of tangible personal
property or digital property ordered by mail, by telephone, via the Internet, or by another
similar method, to a purchaser who is in this State at the time the order is remitted, from
a retailer who receives the order in another state and delivers the property or causes it
to be delivered to a person in this State. It is presumed that a resident of this State who
remits an order was in this State at the time the order was remitted.” This definition is
added to replace the definition of “ Mail order sale” that is repealed.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Retailer – ( 35). This definition is amended to clarify the term also applies to services
and digital property. In addition, “ mail order” is replaced with “ remote sale.” The
definition is reorganized grammatically for ease of reading and modernizing of
language.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Ringtone – ( 35c). The term is defined as “ a digitized sound file that is downloaded
onto a device and that may be used to alert the user of the device with respect to a
communication.” This definition is added as a result of the imposition of tax on certain
digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Sale or selling – ( 36). This definition is amended to clarify that the term also applies to
services and digital property. The definition is reorganized for ease of reading and
modernizing of language. “ Lease or rental” was added to this definition and a group of
sentences relating to the giving away of taxable items is deleted from the definition.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Sales price – ( 37). This definition is amended to clarify the term also applies to digital
property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Storage – ( 44). This definition is amended to clarify the term also applies to digital
property purchased from a retailer. The definition was further rewritten to clarify
transactions that are not included in the definition of storage.
25
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Storage and use; Exclusion – ( 45). This definition is repealed, but incorporated into
the G. S. 105- 164.3( 44) exemption.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Streamlined Agreement – ( 45a). The definition is amended to reflect the latest
version of the Streamlined Sales and Use Tax Agreement of May 12, 2009.
( Effective August 7, 2009; SB 509, s. 11, S. L. 09- 445.)
Telecommunications service – ( 48). This definition is amended to replace language
in ( a.) with “ an information service” which is now defined in G. S. 105- 164.3( 14a) and to
replace language in ( h.) with “ Digital property that is delivered or accessed
electronically, including an audio work, an audiovisual work, or any other item subject to
tax under G. S. 105- 164.4( a)( 6b)” with an effective date of January 1, 2010.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Use – ( 49). This definition is amended to clarify the term also applies to digital property.
In addition, language is added to clarify the definition does not include a purchaser’s
use of tangible personal property or digital property in any circumstances that would
exclude the storage of property under G. S 105.164.3( 44).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Wholesale merchant – ( 51). This definition is amended to clarify the term also applies
to services and digital property. The definition is reorganized for ease of reading and
modernizing of language.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Wholesale sale – ( 52). This definition is amended to clarify the term also applies to
services and digital property. The definition adds the following: “ The term includes a
sale of digital property for reproduction into digital or tangible personal property offered
for sale. The term does not include a sale to a user or consumer not for resale or, in the
case of digital property, not for reproduction and sale of the reproduced property.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
G. S. 105- 164.4( a) – Increase in State Sales Tax Rate: The State general rate of tax
increases from 4.5% to 5.5% for sales made on or after September 1, 2009 and before
October 1, 2009. A retailer is not liable for an overcollection or undercollection of sales
tax if the retailer has made a good faith effort to comply with the law and collect the
26
proper amount of tax. This “ good faith” clause applies only to the period beginning
September 1, 2009, and ending October 1, 2009.
As a result of the one percent ( 1%) State rate increase, the combined general rate as
defined in G. S. 105- 164.3( 4a) that applies only to sales of telecommunications service,
ancillary service, video programming ( including cable and direct- to- home satellite
service), and spirituous liquor increases from 7% to 8%.
( Effective August 7, 2009; SB 202, s. 27A. 2.( a), S. L. 09- 451. Effective July 1, 2009 for
the period beginning September 1, 2009 and ending October 1, 2009; HB 836, s. 22,
S. L. 09- 575. )
G. S. 105- 164.4( a) – Increase in State Sales Tax Rate: The State general rate of tax
increases from 5.5% to 5.75%. This occurs simultaneously with the repeal of the local
sales tax under Article 44 as a result of the State’s assumption of Medicaid
responsibilities for the counties.
( Effective October 1, 2009 for sales occurring on or after that date the State general rate
is 4.75%; HB 1473, s. 31.16.4( g), S. L. 07- 323. Effective October 1, 2009 for sales
occurring on or after that date the State general rate is 5.75%; SB 202, s. 27A. 2.( b),
S. L. 09- 451. Effective July 1, 2011 for sales occurring on or after that date the State
general rate is 4.75%; SB 202, s. 27A. 2.( b), S. L. 09- 451. )
G. S. 105- 164.4( a)( 6b) – Tax on Digital Property: This new subdivision imposes the
State general and applicable local rate of tax on digital property that is listed below, is
delivered or accessed electronically, is not considered tangible personal property, and
would be taxable under Article 5 if sold in a tangible medium. The tax applies
regardless of whether the purchaser of the item has the right to use it permanently or to
use it without making continued payments. The tax does not apply to a service that is
taxed under G. S. 105- 164.4( a) or to an information service. The following property is
subject to tax under this subdivision: ( a) an audio work, ( b) an audiovisual work, ( c) a
book, a magazine, a newsletter, a report, or another publication, ( d) a photograph or a
greeting card.
( Effective January 1, 2010; SB 202, s. 27A. 3.( e), S. L. 09- 451.)
G. S. 105- 164.4( a)( 1j) – Tax on Electricity Sold to Manufacturers and Farmers: This
new subdivision imposes a State sales tax at the rate of 1.8% on sales of electricity to
manufacturing industries and manufacturing plants for use in connection with the
operation of the industries and plants and to farmers to be used by them for any farming
purposes other than preparing food, heating dwellings, and other household purposes.
The electricity must be measured by a separate meter or another separate device.
( Effective October 1, 2007 for sales occurring on or after that date; SB 3, s. 10( c), S. L.
07- 397. The rate is reduced from 1.8% to 1.4%; effective July 1, 2008 for sales
occurring on or after that date; SB 3, s. 10( d), S. L. 07- 397. The rate is further reduced
27
from 1.4% to 0.8%; effective July 1, 2009 for sales occurring on or after that date; SB 3,
s. 10( e), S. L. 07- 397. The subdivision is repealed and sales of electricity to
manufacturers and farmers are exempt from tax; effective July 1, 2010 for sales
occurring on or after that date; SB 3, s. 10( f), S. L. 07- 397.)
G. S. 105- 164.4B( d) – Sourcing Principles: This subsection is rewritten to bring North
Carolina in compliance with the Streamlined Agreement as defined in G. S. 105-
164.3( 45a). Direct mail is sourced to the location where the property is delivered that
meets one of the following descriptions: ( a) Direct mail purchased pursuant to a direct
pay permit. ( b) When the purchaser provides the seller with information to show the
jurisdictions to which the direct mail is to be delivered. Direct mail that does not meet
either of the above descriptions is sourced to the location from which the direct mail was
shipped. Florist wire sales are sourced to the business location of the florist that takes
the order for the sale. A “ florist wire sale” is a sale in which a retail florist takes a
customer’s order and transmits the order to another retail florist to be filled and
delivered.
( Effective August 7, 2009; SB 509, s. 12, S. L. 09- 445.)
G. S. 105- 164.6 – Complementary Use Tax: This subdivision is amended to conform
to other law changes under G. S. 105- 164.4( a). In subsections ( a) and ( b), the words “ or
digital property” are added after the words “ tangible personal property.” In subsection
( f) the words “ digital property, or a service” are added after the words “ tangible personal
property.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( h), S. L. 09- 451.)
G. S. 105- 164.6A( a) – Voluntary Collection Agreements: This subdivision is
amended to conform to other law changes under G. S. 105- 164.4( a). The words “ digital
property, or services” are added after the words “ tangible personal property.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( i), S. L. 09- 451.)
G. S. 105- 164.7 – Retailer to Collect Sales Tax from Purchaser as Trustee for State:
This section is rewritten by changing the title of the section and striking all the language
in the section. The rewritten language is as follows: “ The sales tax imposed by this
Article is intended to be passed on to the purchaser of a taxable item and borne by the
purchaser instead of by the retailer. A retailer must collect the tax due on an item when
the item is sold at retail. The tax is a debt from the purchaser to the retailer until paid
and is recoverable at law by the retailer in the same manner as other debts. A retailer is
considered to act as a trustee on behalf of the State when it collects tax from the
purchaser of a taxable item."
( Effective August 7, 2009; SB 202, s. 27A. 3.( j), S. L. 09- 451.)
28
G. S. 105- 164.8 – Retailer’s Obligation to Collect Tax; Remote Sales Subject to
Tax: G. S. 105- 164.8( b) provides that a retailer who makes a mail order sale is engaged
in business in this State and is subject to the sales and use tax if at least one of the
conditions in ( b)( 1) through ( b)( 8) are met. G. S. 105- 164.8( b)( 3) codifies the principle
announced by the United States Supreme Court in Scripto v. Carson that a state may
require tax collection by a remote retailer that had contacts with 10 independent
contractors in the state who solicited orders for products on its behalf. G. S. 105-
164.8( b)( 3) requires a retailer who makes a mail order sale to collect the sales tax if:
“ The retailer has representatives in this State who solicit business or transact business
on behalf of the retailer, whether the mail order sales thus subject to taxation by this
State result from or are related in any way to such solicitation or transaction of
business.”
The clarifying amendments to G. S. 105- 164.8( b) modernize the terminology of the
statute by replacing “ mail order sales” with “ remote sales.” The clarification rewrites
G. S. 105- 164.8( b)( 3) as follows: “ The retailer solicits or transacts business in this State
by employees, independent contractors, agents, or other representatives, whether the
remote sales thus subject to taxation by this State result from or are related in any other
way to the solicitation or transaction of business.” The clarification also adds the
following bright line presumption: “ A retailer is presumed to be soliciting or transacting
business by an independent contractor, agent, or other representative if the retailer
enters into an agreement with a resident of this State under which the resident, for a
commission or other consideration, directly or indirectly refers potential customers,
whether by a link on an Internet Web site or otherwise, to the retailer. This presumption
applies only if the cumulative gross receipts from sales by the retailer to purchasers in
this State who are referred to the retailer by all residents with this type of agreement
with the retailer is in excess of ten thousand dollars ($ 10,000) during the preceding four
quarterly periods. This presumption may be rebutted by proof that the resident with
whom the retailer has an agreement did not engage in any solicitation in the State on
behalf of the seller that would satisfy the nexus requirement of the United States
Constitution during the four quarterly periods in question.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( a), S. L. 09- 451.)
G. S. 105- 164.11( e) – Reliance on Written Advice: This is a new subsection which
allows a seller who requests specific written advice from the Secretary of Revenue and
who acts in accordance with the written advice to not be held liable to a purchaser for
any overcollected sales or use tax that was collected in accordance with the written
advice. Subsection ( a) of G. S. 105- 164.11 governs when a seller may obtain a refund
for overcollected tax.
( Effective August 5, 2009; SB 909, s. 1, S. L. 09- 413.)
G. S. 105- 164.13 – Exemptions and Exclusions: The 2009 General Assembly added
and amended exemptions. Also included are exemptions enacted by the 2007 General
29
Assembly with future effective dates. The changes and their effective dates are as
follows:
G. S. 105- 164.13 – Retail sales and use tax. The introductory language in this section
is rewritten to add “ digital property” after the words “ tangible personal property” when a
sale at retail or the use, storage, or consumption in this State is specifically exempt from
tax. This rewrite is to conform with other law changes under G. S. 105- 164.4( a).
( Effective August 7, 2009; SB 202, s. 27A. 3.( k), S. L. 09- 451.)
Fuel sold to farmers – ( 1). This exemption for sales of specific items to a farmer for
use by the farmer in the planting, cultivating, harvesting, or curing of farm crops or in the
production of dairy products, eggs, or animals was rewritten to remove the reference to
“ electricity” in the phrase “ fuel other than electricity.” The sales tax on electricity will be
phased out.
( Effective July 1, 2010 for sales occurring on or after that date; SB 3, s. 10( g), S. L. 07-
397.)
Electricity sold to farmers – ( 1b). This is a new exemption for electricity sold to a
farmer to be used for any farming purpose other than preparing food, heating dwellings,
and other household purposes.
( Effective July 1, 2010 for sales occurring on or after that date; SB 3, s. 10( h), S. L. 07-
397.)
Sales to a telephone company – ( 5b). This exemption is amended to modernize
language. The word “ telephone” was changed to “ telecommunications”. There is no
change in the application of the exemption.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of magazines – ( 28). This exemption is rewritten to delete sales of magazines
by magazine vendors making door to door sales.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of computer software – ( 43a). This exemption is rewritten to delete computer
software delivered electronically or by load and leave. However, computer software
meeting any one of the following descriptions will be exempt: ( a) It is designed to run on
an enterprise server operating system. ( b) It is sold to a person who operates a
datacenter and is used within the datacenter. ( c) It is sold to a person who provides
cable service, telecommunications service, or video programming and is used to
30
provide ancillary service, cable service, Internet access service, telecommunications
service, or video programming.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of computer software or digital property that becomes a component part –
( 43b). This is a new exemption for computer software or digital property that becomes
a component part of other computer software or digital property that is offered for sale
or of a service that is offered for sale.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of aircraft lubricants, repair parts, and accessories – ( 45). This exemption is
amended to only include aircraft lubricants, aircraft repair parts, and aircraft accessories
sold to an interstate passenger air carrier for use at its hub. Aircraft simulators for flight
crew training sold to an interstate passenger air carrier for use at its hub is deleted from
this exemption.
( Effective October 1, 2009 for sales occurring on or after that date; SB1057, s. 1, S. L.
09- 511.)
Sales of aircraft simulators – ( 45c). This is a new exemption for aircraft simulators
sold to a company for flight crew training and maintenance training.
( Effective October 1, 2009 for sales occurring on or after that date; SB1057, s. 1, S. L.
09- 511.)
Fuel and electricity sold to manufacturers – ( 57). This is a new exemption for fuel
and electricity sold to a manufacturer for use in connection with the operation of a
manufacturing facility.
( Effective July 1, 2010 for sales occurring on or after that date; SB 3, s. 10( h), S. L. 07-
397.)
G. S. 105- 164.13B( a) – State Sales Tax Exemption for Certain Bakery Items: This is
a new exemption from the State sales and use tax for bakery items sold without eating
utensils by an artisan bakery. These items are subject to the 2% local sales and use
tax applicable to sales of qualifying food. Subdivision ( 4), which provides that “ prepared
food” is subject to the State and applicable local rates of tax, was amended to provide
that prepared food other than bakery items sold without eating utensils by an artisan
bakery is subject to the State and local rates of tax. For purposes of the exemption, the
term “ bakery item” includes bread, rolls, buns, biscuits, bagels, croissants, pastries,
donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas. An
“ artisan bakery” is defined as “… a bakery that meets all of the following requirements:
31
( a) It derives over eighty percent ( 80%) of its gross receipts from bakery items. ( b) Its
annual gross receipts, combined with the gross receipts of all related persons as
defined in G. S. 105- 163.010, do not exceed one million eight hundred thousand dollars
($ 1,800,000).”
( Effective January 1, 2009 for sales made on or after that date; HB 2436, s. 28.19( a),
S. L. 08- 107.)
G. S. 105- 164.14( b) – Nonprofit Entities and Hospital Drugs: This subdivision is
rewritten to create a more succinct reading of the refund provision.
( Effective August 7, 2009; SB 509, s. 13, S. L. 09- 445.)
G. S. 105- 164.14( b)( 1) – Nonprofit Entities and Hospital Drugs: This subdivision is
amended to allow a public hospital described in Article 2 of Chapter 131E to receive a
semiannual refund of sales and use tax as described in G. S. 105- 164.14( b).
( Effective August 28, 2009; HB 274, s. 4.1, S. L. 09- 550.)
G. S. 105- 164.14( b)( 2a) – Nonprofit Entities and Hospital Drugs: This new
subdivision allows a volunteer fire department and a volunteer emergency medical
services squad to receive a semiannual refund of sales and use taxes paid by it under
Article 5 on direct purchases of tangible personal property and services, other than
electricity, telecommunications service, and ancillary service, for use in carrying on the
work of the above entities if they are exempt from income tax under the Code. Effective
July 1, 2008, some of these entities did not qualify for refunds since they were not
exempt from income tax under section 501( c)( 3) of the Internal Revenue Code. As a
result of this new subdivision, these entities now qualify for refunds on purchases made
on or after July 1, 2008.
( Effective July 1, 2008 and applies to purchases made on or after that date; HB 511, s.
1, S. L. 09- 233.)
G. S. 105- 164.14( c)( 23) – Certain Governmental Entities: This new subdivision is
added to allow a special district created under Article 43 to apply for an annual refund of
sales and use taxes paid by it under Article 5 on direct purchases of tangible personal
property and services, other than electricity, telecommunications service, and ancillary
service. This special district is a regional public transportation authority created in
accordance with Article 43.
( Effective August 27, 2009; HB 148, s. 2.( d), S. L. 09- 527.)
G. S. 105- 164.14( j)( 2) n. – Certain Industrial Facilities: A technical amendment is
made to replace the phrase “ Solar energy generating materials manufacturing” with
“ Solar electricity generating materials manufacturing.”
32
( Effective July 1, 2008 and applies to purchases made on or after that date; SB 509, s.
14.( a), S. L. 09- 445.)
G. S. 105- 164.15A( a) – Effective Date of Tax Changes on Services and Items Taxed
at Combined General Rate: This subsection is amended to consolidate subdivisions
( 1) and ( 2) into a. and b. of subdivision ( 1). Subdivision ( 2) is rewritten to add the
following: “ For a service that is not billed on a monthly or other periodic basis, a tax
change applies to amounts received for services provided on or after the effective date,
except amounts received for services provided under a lump- sum or unit- price contract
entered into or awarded before the effective date or entered into or awarded pursuant to
a bid made before the effective date.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( l), S. L. 09- 451.)
G. S. 105- 164.16 – Returns and Payment of Taxes: This is amended to clarify that the
subsection also applies to services and digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( m), S. L. 09- 451.)
G. S. 105- 164.16( d) – Use Tax on Out of State Purchases: The subsection that is
effective for taxable years beginning on or after January 1, 2010 is repealed. The effect
is that use tax due by individuals will continue to be reported on the North Carolina
Individual Income Tax Return.
( Effective August 7, 2009; SB 202, s. 27A. 3.( b), S. L. 09- 451.)
G. S. 105- 164.16( e) – Simultaneous State and Local Changes: This subsection was
added to clarify the reporting of sales and use tax on lease or rental payments and
installment sale payments when the State and local rates change on the same date but
the “ combined general rate” does not change. When the State and local sales and use
tax rates change on the same date because one increases and the other decreases, but
the “ combined general rate” as defined in G. S. 105- 164.3( 4a) does not change, taxes
payable on the gross receipts from the following periodic payments are to be reported in
accordance with the changed State and local rates: ( 1) Lease or rental payments billed
after the effective date of the changes. ( 2) Installment sale payments received after the
effective date of the changes by a taxpayer who reports the installment sale on a cash
basis. This subsection is further amended to delete some language; however, no
substantive change.
( Effective July 28, 2008; SB 1704, s. 11, S. L. 08- 134. Effective August 7, 2009; SB
202. s. 27A. 3( m), S. L. 09- 451.)
G. S. 105- 164.22 – Record- Keeping Requirements, Inspection Authority, and Effect
of Failure to Keep Records: This section is renamed and rewritten to incorporate the
language from G. S. 105- 164.22, G. S. 105- 164.23, G. S. 105- 164.24, G. S. 105- 164.25,
and G. S. 105- 164.31.
33
( Effective August 7, 2009; SB 202, s. 27A. 3.( n), S. L. 09- 451.)
G. S. 105- 164.23 – Consumer Must Keep Records: This section is repealed;
however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.24 – Separate Accounting Required: This section is repealed;
however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.25 – Wholesale Merchant Must Keep Records: This section is
repealed; however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.26 – Presumption that Sales are Taxable: This section is rewritten to
reorganize the section and to modernize the language. Two new subsections are
added to address digital property and a service.
( Effective August 7, 2009; SB 202, s. 27A. 3.( p), S. L. 09- 451.)
G. S. 105- 164.27A( a) – Direct pay permit: This subsection is renamed “ General.”
This is amended to clarify that the subsection applies to services and digital property as
well as tangible personal property. The subsection is reorganized by adding ( a1)
regarding direct mail for ease of reading.
( Effective August 7, 2009; SB 202, s. 27A. 3.( q), S. L. 09- 451.)
G. S. 105- 164.28 – Certificate of Resale: This section is amended to replace the
words “ tangible personal property” or “ property” with the words “ an item” or “ item” as
appropriate. This change makes this section generic to what is applicable for resale
under G. S. 105- 164.4( a).
( Effective August 7, 2009; SB 202, s. 27A. 3.( r), S. L. 09- 451.)
G. S. 105- 164.28A( a) – Other exemption certificates: This section is amended to
replace the words “ tangible personal property” or “ property” with the words “ an item” or
“ item” as appropriate. This change makes this section generic to what is applicable for
exemption under G. S. 105- 164.13.
( Effective August 7, 2009; SB 202, s. 27A. 3.( s), S. L. 09- 451.)
34
G. S. 105- 164.29( a) – Application for certificate of registration: This subsection is
rewritten to add “ Before a person may engage in business as a retailer or a wholesale
merchant, the person must obtain a certificate of registration.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( t), S. L. 09- 451.)
G. S. 105- 164.31 – Complete Records Must Be Kept for Three Years: This section is
repealed; however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.32 – Incorrect returns; estimate: This section is rewritten as follows: “ If
a retailer, a wholesale merchant, or a consumer fails to file a return and pay the tax due
under this Article or files a grossly incorrect, false or fraudulent return, the Secretary
must estimate the tax due and assess the retailer, wholesale merchant, or consumer
based on the estimate.” The new language is to include all items that are taxable under
G. S. 105- 164.4( a).
( Effective August 7, 2009; SB 202, s. 27A. 3.( u), S. L. 09- 451.)
G. S. 105- 164.44E – Transfer to the Dry- Cleaning Solvent Cleanup Fund: This
section is amended to provide for a sunset of the transfer to the Dry- Cleaning Solvent
Cleanup Fund established under G. S. 143- 215.104C an amount equal to fifteen percent
( 15%) from the net State sales and use tax collected under G. S. 105- 164.4( a)( 4). This
section is repealed effective July 1, 2020.
( Effective August 26, 2009; SB 700, s. 8, S. L. 09- 483.)
G. S. 105- 164.44F – Distribution of part of telecommunications taxes to cities: This
section is rewritten to reduce the distributable percentage amounts on
telecommunications service and ancillary service to cities and counties. This is to hold
the State harmless as a result of the temporary one percent ( 1%) increase of the
“ combined general rate” for telecommunications service and ancillary service.
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 202, s. 27A. 2.( c), S. L. 09- 451. Effective July 1, 2011, the reduced distributable
percentage amounts are repealed; SB 202, s. 27A. 2.( c), S. L. 09- 451.)
G. S. 105- 164.44G – Distribution of part of tax on modular homes: This section is
amended to change the formula used to distribute twenty percent ( 20%) of the taxes
under G. S. 105- 164.4( a)( 8) on modular homes. The new formula utilizes G. S. 105- 486
as the basis for distribution instead of G. S. 105- 520, which is repealed effective October
1, 2009.
( Effective October 1, 2009, and applies to distributions made on or after that date; SB
509, s. 15( a), S. L. 09- 445.)
35
G. S. 105- 164.44I – Distribution of part of sales tax on video programming and
telecommunications: This section is rewritten to reduce the distributable percentage
amounts on telecommunications service and video programming service to cities and
counties. This is to hold the State harmless as a result of the temporary one percent
( 1%) increase of the “ combined general rate” for telecommunications service and video
programming service.
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 202, s. 27A. 2.( c), S. L. 09- 451. Effective July 1, 2011, the reduced distributable
percentage amounts are repealed; SB 202, s. 27A. 2.( c), S. L. 09- 451.)
Chapter 323 of the 2007 Session Laws – Transfer for Wildlife Resources
Commission: This act provides that, for the 2007- 2008 and 2008- 2009 fiscal years,
the Secretary of Revenue must make a quarterly transfer from the State sales and use
tax net collections to the State Treasurer for the Wildlife Resources Fund to fund
legislative salary increases for Wildlife Resources Commission employees.
( Effective July 1, 2007; HB 1473, s. 28.15B, S. L. 07- 323.)
LOCAL SALES AND USE TAX
G. S. 105- 472( b)( 3) – Distribution Between Counties and Cities: This is a new
subsection that adds a new method of splitting the net proceeds of the tax collected in a
taxing county. The Combined Method uses both the Per Capita and Ad Valorem
Methods with neither method being used to distribute less than forty percent ( 40%) of
the net proceeds of the tax. The county commissioners decide the percentages of each
method if the combined method is chosen. Onslow County is the only county allowed to
use this new combined method.
( Effective April 29, 2009; HB 63, s. 1 and 2, S. L. 09- 18.)
G. S. 105- 487 – Use of Additional Tax Revenue by Counties: This subsection
amends the length of time requiring a county to reserve thirty percent ( 30%) of revenue
received from this Article for the public school capital outlay fund in each county. The
sunset provision is deleted, ensuring the public outlay fund will continue to be funded at
its current level in perpetuity.
( Effective January 1, 2010 for sales made on or after that date; HB 311, s 1, S. L. 09-
395.)
G. S. 105- 501 – Distribution of Second One- Half Percent Local Sales and Use Tax:
This section alters the method of distributing the proceeds of the second one- half
percent tax from per capita to point of origin. The amount of the net proceeds allocated
to a county is no longer adjusted by the statutory adjustment factors.
36
( Effective October 1, 2009 for distributions for months beginning on or after that date;
HB 1473, s. 31.16.4( b), S. L. 07- 323.)
G. S. 105- 502 – Use of Additional Tax Revenue by Counties: This section amends
the method of determining the amount required to be reserved for the public school
capital outlay fund in each county. As a result of the second one- half percent tax
distribution method changing October 1, 2009, some counties will receive less funds
under G. S. 105- 501. The county must use sixty percent ( 60%) of the amount of
revenue specified in the following: ( 1) The amount of revenue the county receives under
G. S. 105- 501( a). ( 2) If the amount allocated to the county under G. S. 105- 486 is greater
than the amount allocated to the county under G. S. 105- 501( a), the difference between
the two amounts. This new method ensures the public school capital outlay fund is held
harmless as a result of the Medicaid swap.
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 1704, s. 13( a), S. L. 08- 134.)
G. S. 105- 502– ( Effective October 1, 2009) Use of Additional Tax Revenue by
Counties: This subsection amends the length of time requiring a county to reserve
sixty percent ( 60%) of revenue received specified calculation from this Article for the
public school capital outlay fund in each county. The sunset provision is deleted,
ensuring the public outlay fund will continue to be funded at its current level in
perpetuity.
( Effective January 1, 2010 for sales made on or after that date; HB 311, s. 2, S. L. 09-
395.)
G. S. 105- 505 – Local Government Sales and Use Tax for Public Transportation:
This section is amended to add transportation authorities and gives counties an
opportunity to obtain an additional source of revenue with which to meet their needs for
financing local public transportation systems. Previously, only Mecklenburg County had
this opportunity. All such taxes must be approved in a referendum.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 506 – Definitions: This section is amended to add two definitions and amend
another. The term “ Board of trustees” is added as ( 1) and defined as “ the governing
body of a transportation authority.” The term “ Net proceeds” is renumbered from ( 1) to
( 2). The term “ Public transportation system” is renumbered from ( 2) to ( 3) and the
definition is amended to add an interconnected bicycle and pedestrian infrastructure
that supports public transportation as part of a system. The term “ Transportation
authority” is added and defined as “ For the purposes of Parts 3 and 3A of this Article, a
regional public transportation authority created pursuant to Article 26 of Chapter 160A of
the General Statutes; and for the purposes of Parts 3 and 3B of this Article, a regional
37
transportation authority created pursuant to Article 27 of Chapter 160A of the General
Statutes.”
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 507 – Limitations: This section applies to Mecklenburg County only. The
word “ Article” is replaced with “ Part” as a result of Article 43 being separated into
multiple parts.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 508 – Local Election on Adoption: This section applies to Mecklenburg
County only. The word “ Article” is replaced with “ Part” as a result of Article 43 being
separated into multiple parts. In addition, a specific local tax reference is replaced with
a generic local tax reference.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 509 – Levy and Collection: This section applies to Mecklenburg County
only. The word “ Article” is replaced with “ Part” as a result of Article 43 being separated
into multiple parts. In addition, “ this Article” is replaced with “ G. S. 105- 508” as a
technical change.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510 – Distribution and Use of Taxes: This section applies to Mecklenburg
County only. The word “ Article” is replaced with “ Part” as a result of Article 43 being
separated into multiple parts.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S 105- 510.1 – Applicability: This new section applies to Mecklenburg County only.
The word “ section” is replaced with “ Part” as a result of Article 43 being separated into
multiple parts.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.5 – Special Districts: This new section applies to transportation
authorities only. A transportation authority may create a special district as provided in
Part 3A and 3B of this Article along with its specific provisions. The transportation
authority also has filing requirements with the Secretary of State.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.6 – Limitations: This new section applies to transportation authorities
only. A transportation authority may not levy a tax under Part 3A or 3B of this Article
38
unless ( 1) It operates a public transportation system. ( 2) It has developed a financial
plan in conjunction with other requirements listed in this section. ( 3) The tax is approved
by the voters.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.7 – Distribution and Use of Taxes: This new section applies to
transportation authorities only. On a monthly basis the Department will allocate to each
special district the net proceeds of the tax levied under this Part within the special tax
district. A special district must use the net proceeds distributed to it in accordance with
its financial plan adopted pursuant to G. S. 105- 510.6 and use the net proceeds only for
financing, constructing, operating, and maintaining public transportation systems. The
special district shall use the net proceeds to supplement and not to supplant or replace
existing funds or other resources for public transportation systems.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.8 – Local Election on Adoption of Sales and Use Tax: This new
section applies to the Regional Public Transportation Authority ( Triangle) which may
consist of Durham, Orange and Wake Counties. This section provides the procedures
in which a transportation authority may proceed with a resolution to place the levy
question on the ballot. The ballot question is “[ ] For [ ] Against One- half percent
( 1/ 2%) local sales and use taxes, in addition to the current local sales and use taxes, to
be used only for public transportation systems.” The special district created may consist
of one, two, or three of the above counties.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.9 – Levy and Collection of Sales and Use Tax: This new section
applies to the Regional Public Transportation Authority ( Triangle) which may consist of
Durham, Orange and Wake Counties. If the majority of those voting in a referendum
vote for the levy of the tax, then the transportation authority may, by resolution, levy the
one- half percent ( 1/ 2%) tax. In determining the results of a multicounty district, all
counties must receive majority vote in each county. Those counties that pass the
referendum will remain in the special district and those counties that do not pass the
referendum are removed from the special district.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.10 – Local Election on Adoption of Sales and Use Tax: This new
section applies to the Regional Public Transportation Authority ( Triad) which may
consist of Forsyth and Guilford Counties. This section provides for the procedures in
which a transportation authority may proceed with a resolution to place the levy
question on the ballot. The ballot question is “[ ] For [ ] Against One- half percent
( 1/ 2%) local sales and use taxes, in addition to the current local sales and use taxes, to
39
be used only for public transportation systems.” The special district created may consist
of one or two of the above counties.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.11 – Levy and Collection of Sales and Use Tax: This new section
applies to the Regional Public Transportation Authority ( Triad) which may consist of
Forsyth and Guilford Counties. If the majority of those voting in a referendum vote for
the levy of the tax, then the transportation authority may, by resolution, levy the one- half
percent ( 1/ 2%) tax. In determining the results of a multicounty district, all counties must
receive majority vote in each county. Those counties that pass the referendum will
remain in the special district and those counties that do not pass the referendum are
removed from the special district.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.12 – Applicability: This new section applies only in counties other than
Durham, Forsyth, Guilford, Mecklenburg, Orange, or Wake Counties. This is also
applicable to sections 105- 510.13 through 105- 510.16.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.13 – Limitations: This new section applies only in counties other than
Durham, Forsyth, Guilford, Mecklenburg, Orange, or Wake Counties. A county may not
levy the tax under this Part unless the county or at least one unit of local government in
the county operates a public transportation system. Operation of a public transportation
system also includes a contract with a private entity for operation of the public
transportation system.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.14 – Local Election on Adoption of Sales and Use Tax: This new
section applies only in counties other than Durham, Forsyth, Guilford, Mecklenburg,
Orange, or Wake Counties. The board of commissioners may direct the county board
of elections to conduct an advisory referendum subject to specific procedures. The
ballot question is “[ ] For [ ] Against One- quarter percent ( 1/ 4%) local sales and use
taxes, in addition to the current local sales and use taxes, to be used only for public
transportation systems.”
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.15 – Levy and Collection of Sales and Use Tax: This new section
applies only in counties other than Durham, Forsyth, Guilford, Mecklenburg, Orange, or
Wake Counties. If the majority of those voting in a referendum vote for the levy of the
tax, then the board of commissioner of the county may, by resolution, levy the one-quarter
percent ( 1/ 4%) tax.
40
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.16 – Distribution and Use of Taxes: This new section applies only in
counties other than Durham, Forsyth, Guilford, Mecklenburg, Orange, or Wake
Counties. On a monthly basis the Department will allocate to each county the net
proceeds of the tax levied under this Part, then the Department will distribute the net
proceeds of the tax by the county on a per capita basis among the county and units of
local government in the county that operate a public transportation system in
conjunction with additional rules. A county or municipality must use the net proceeds
only for financing, constructing, operating, and maintaining public transportation
systems. The county or municipality shall use the net proceeds to supplement and not
to supplant or replace existing funds or other resources for public transportation
systems.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 515 through 105- 520 – Third One- Half Percent Local Sales and Use Tax
Repealed: The sections providing for the adoption, levy, administration, and
distribution of the third one- half percent tax are repealed.
( Effective October 1, 2009 for sales occurring on or after that date; HB 1473, s.
31.16.4( a), S. L. 07- 323.)
G. S. 105- 522 – City Hold Harmless for Repealed Local Taxes: This is a new section
providing a municipality that was incorporated on or before October 1, 2008 and
receives a sales and use tax distribution under G. S. 105- 472 receives a hold harmless
amount. The hold harmless amount is 50% of the amount of sales and use tax revenue
distributed for a month to the municipality under Article 40 other than revenue from
sales of qualifying food subject to only the 2% local tax. A county must hold the
municipalities harmless from the repeal of the taxes formerly imposed under Article; the
municipality’s hold harmless amount is to be added to the municipality’s monthly
distribution. The revenue for the hold harmless distribution is obtained by reducing
each county’s monthly allocation under G. S. 105- 472( b) or under the corresponding
provision in the Mecklenburg first one- cent sales tax act by the hold harmless amounts
for the municipalities in that county.
( Effective October 1, 2008 for distributions for months beginning on or after that date;
HB 1473, s. 31.16.3( f), S. L. 07- 323. The calculation of the repealed sales tax amount is
changed for fiscal year 2008- 2009; effective October 1, 2008 for distributions for months
beginning on or after that date; HB 1473, s. 31.16.3( g), S. L. 07- 323. Repealed ( Effective
July 28, 2008; SB 1704, s. 15( b), S. L. 08- 134.) The calculation of the hold harmless
amount is amended; effective October 1, 2009 for distributions for months beginning on
or after that date; HB 1473, s. 31.16.4( c), S. L. 07- 323. Repealed ( Effective July 28,
2008; SB 1704, s. 15( c), S. L. 08- 134.) For the 2009- 2010 fiscal year, further changes
are made in the method of calculating the repealed sales tax amount; effective October
41
1, 2009; HB 1473, s. 31.16.4( e), S. L. 07- 323. Repealed ( Effective July 28, 2008; SB
1704, s. 15( e), S. L. 08- 134.) Further revisions are made in the method of calculating
the hold harmless amount; effective October 1, 2009 for distributions for months
beginning on or after that date; HB 714, s. 14.4( a), S. L. 07- 345.) Repealed ( Effective
July 28, 2008; SB 1704, s. 15( f), S. L. 08- 134.)
G. S. 105- 522( a)( 2) – City Hold Harmless for Repealed Local Taxes: This amends
the city hold harmless calculation to match the formulas used in the tables that calculate
the impact of the “ Medicaid swap”. The new calculation is the sum of ( a.) the amount
allocated under G. S. 105- 486 ( Article 40) and ( b.) amount determined by subtracting
twenty- five percent ( 25%) of G. S. 105- 472 ( Article 39) or Chapter 1096 of the 1967
Session Laws from fifty percent ( 50%) of G. S. 105- 486 ( Article 40).
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 1704, s. 15( g), S. L. 08- 134.)
G. S. 105- 523 – County Hold Harmless for Repealed Local Taxes: This is a new
section requiring the Secretary to make hold harmless payments to a county if the
“ repealed sales tax amount” for a fiscal year exceeds the county’s “ hold harmless
threshold.” These terms are defined in this section. To determine if the county is
eligible for a hold harmless payment, the Secretary must estimate a county’s repealed
sales tax amount and hold harmless threshold for a fiscal year and must send an
eligible county 90% of its estimated hold harmless payment with the monthly distribution
made under G. S. 105- 472 for March of that year. At the end of each fiscal year, the
Secretary is required to determine the difference between a county’s repealed sales tax
amount and its hold harmless threshold for that year and send the remainder of the
county’s hold harmless payment for the fiscal year ended June 30 by August 15. The
intent of this section is that each county benefit by at least $ 500,000 annually from the
exchange of a portion of the local sales and use taxes for the State’s assumption of
responsibility for the non- administrative costs of Medicaid.
( Effective October 1, 2008 for distributions for months beginning on or after that date;
HB 1473, s. 31.16.3( f), S. L. 07- 323. The calculation of the repealed sales tax amount is
changed for fiscal year 2008- 2009; effective October 1, 2008 for distributions for months
beginning on or after that date; HB 1473, s. 31.16.3( g), S. L. 07- 323. Repealed ( Effective
July 28, 2008; SB 1704, s. 15( b), S. L. 08- 134.) The calculation of the hold harmless
amount is amended; effective October 1, 2009 for distributions for months beginning on
or after that date; HB 1473, s. 31.16.4( d), S. L. 07- 323. Repealed ( Effective July 28,
2008; SB 1704, s. 15( d), S. L. 08- 134.) For the 2009- 2010 fiscal year, further changes
are made in the method of calculating the repealed sales tax amount; effective October
1, 2009; HB 1473, s. 31.16.4( e), S. L. 07- 323. Repealed ( Effective July 28, 2008; SB
1704, s. 15( e), S. L. 08- 134.) Further revisions are made in the method of calculating
the repealed sales tax amount; effective October 1, 2009 for distributions for months
beginning on or after that date; HB 714, s. 14.4( b), S. L. 07- 345.) Repealed ( Effective
July 28, 2008; SB 1704, s. 15( f), S. L. 08- 134.)
42
G. S. 105- 523( b)( 2) – County Hold Harmless for Repealed Local Taxes: This amends
the definition of “ Hold Harmless Threshold” to ensure that a county’s Medicaid service
costs for the fiscal years 2008- 2009, 2009- 2010, and 2010- 2011 are determined without
regard to the changes made to the Federal Medical Assistance Percentage by section
5001 of the American Recovery and Reinvestment Act of 2009.
( Effective July 31, 2009 and applies to distributions for months beginning on or after
October 1, 2008; HB 102, s. 4.( a), S. L. 09- 399.)
G. S. 105- 523( b)( 3) – County Hold Harmless for Repealed Local Taxes: This
amends the county hold harmless calculation to match the formulas used in the tables
that calculate the impact of the “ Medicaid swap”. The new calculation is the sum of
subdivision ( a.) the amount allocated under G. S. 105- 486 ( Article 40) and subdivision
( b.) amount determined by subtracting twenty- five percent ( 25%) of G. S. 105- 472
( Article 39) or Chapter 1096 of the 1967 Session Laws from fifty percent ( 50%) of G. S.
105- 486 ( Article 40).
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 1704, s. 15( h), S. L. 08- 134.)
G. S. 105- 538 – Administration of Taxes: A technical amendment is made to this
section to clarify that sales of a bundled transaction taxable pursuant to G. S. 105-
467( a)( 5a) does not apply to Article 46. Furthermore, language that referred to the
2008 calendar is repealed.
( Effective August 7, 2009; SB 509, s. 16, S. L. 09- 445.)
Chapter 323 of the 2007 Session Laws – Reduction of Third One- Half Percent
Local Sales and Use Tax: As a result of the State’s assumption of Medicaid
responsibilities for the counties, this act reduces the one- half percent ( ½ %) sales and
use tax authorized under Article 44 of Chapter 105 of the General Statutes to one-quarter
percent ( ¼ %). No action is required of the county; a resolution enacted by the
county to levy the one- half percent tax is considered to be a resolution authorizing the
levy of the one- quarter percent tax. The one- quarter percent reduction is offset by a
one- quarter percent increase in the State general rate of sales and use tax.
( Effective October 1, 2008 for sales occurring on or after that date; HB 1473, s.
31.16.3( a), S. L 07- 323. The remaining one- quarter percent ( ¼ %) local tax under Article
44 is repealed; effective October 1, 2009 for sales occurring on or after that date; HB
1473, s. 31.16.4( a), S. L. 07- 323.)
Chapter 323 of the 2007 Session Laws – Article 44 Title: The title of Article 44 is
changed from “ Third One- Half Cent Local Government Sales and Use Tax” to “ Local
Government Hold Harmless Provisions” as a result of the repeal of the third one- half
percent local tax.
43
( Effective October 1, 2009; HB 1473, s. 31.16.4( f), S. L. 07- 323.)
Chapter 1096 of the Session Laws, as Amended – Mecklenburg First 1% Sales
Tax Act: The division is amended to tie the levy, collection, administration, and repeal
of this tax to Article 39 of Chapter 105 of the General Statutes, except as provided
differently in this division. This amendment is an effort to allow all future changes to the
Article 5 and Article 39 to flow into this division. In the past all changes were required to
be duplicated into this division. Language that can be replaced by the “ catch all” is
repealed. In addition, clarifying language is added to ensure the division of the net
proceeds of the tax collected on items other than food between Mecklenburg County
and its municipalities are in accordance with the ad valorem distribution method
described in G. S. 105- 164- 472( b)( 2).
( Effective August 7, 2009; SB 509, s. 19, S. L. 09- 445)
HIGHWAY USE TAX – ARTICLE 5A
G. S. 105- 187.3( b1) – Retail Value: This new subsection is addresses the retail value
of Department of Defense Vehicles. The retail value of a vehicle for which a certificate
of title is issued because of a transfer by a State agency that assists the United States
Department of Defense with purchasing, transferring, or titling a vehicle to another State
agency, a unit of local government, a volunteer fire department, or a volunteer rescue
squad is the sales price paid by the State agency, unit of local government, volunteer
fire department, or volunteer rescue squad.
( Effective August 28, 2009; HB 274, s. 2.( e), S. L. 09- 550.)
G. S. 105- 187.6( a) – Exemptions: This subsection is rewritten to add an exemption
from highway use tax when a unit of local government, volunteer fire department, or
volunteer rescue squad transfers title of a motor vehicle to a State agency to enable that
State agency to transfer that same vehicle to another unit of local government,
volunteer fire department, or volunteer rescue squad.
( Effective June 11, 2009; HB 201, s. 2, S. L. 09- 81.)
G. S. 105- 187.6( a) 7 – Exemptions: The exemption for a transfer of a motor vehicle to a
handicapped person from the Department of Health and Human Services after the
vehicle had been equipped by the Department for use by the handicapped is repealed.
( Effective August 7, 2009; SB 509, s. 16, S. L. 09- 445.)
44
SCRAP TIRE DISPOSAL TAX – ARTICLE 5B
G. S. 105- 187.19( b) – Use of Scrap Tire Tax Proceeds: This subsection is amended
to reduce the net proceeds credited to the Scrap Tire Disposal Account from twenty- two
percent ( 22%) to seventeen percent ( 17%). In addition, two new funds are added to the
Scrap Tire Distribution. The Inactive Hazardous Sites Cleanup Fund will be credited
two and one- half percent ( 2.5%) of the net proceeds. The Bernard Allen Memorial
Emergency Drinking Water Fund will be credited two and one- half percent ( 2.5%) of the
net proceeds.
( Effective August 7, 2009; SB 202, s. 13.3B.( a), S. L. 09- 451.)
DRY- CLEANING SOLVENT TAX – ARTICLE 5D
G. S. 105- 187.35 – Sunset of Dry- Cleaning Solvent Tax: This section is added to
establish a sunset for Article 5D. The sunset is extended to January 1, 2020. In S. L.
1997- 392, which enacted Article 5D the repeal date of January 1, 2010, had been
established.
( Effective August 26, 2009; SB 700, s. 8, S. L. 09- 483.)
MANUFACTURING FUEL AND CERTAIN MACHINERY AND
EQUIPMENT – ARTICLE 5F
G. S. 105- 187.50 – Definitions: The term “ concurrently maintainable” is repealed. The
term “ eligible datacenter” is rewritten to only include subdivision “ b.” and “ c.” The term
“ multiple distribution paths” is repealed. The term “ redundant capacity components” is
repealed. Under G. S. 105- 164.3( 5c) “ datacenter” is defined. This definition
incorporates all repealed definitions listed above and all items removed from the term
“ eligible datacenter.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( v), S. L. 09- 451)
G. S. 105- 187.51A – Privilege Tax on Manufacturing Fuel: This section is rewritten to
reflect a reduction in the privilege tax rate imposed on a manufacturing industry or plant
that purchases fuel to operate the industry or plant. The rate is reduced from one
percent ( 1%) to seven- tenths percent ( 0.7%).
( Effective October 1, 2007 for fuel purchased on or after that date; SB 3, s. 12( a), S. L.
07- 397. The rate is reduced from 0.7% to 0.5%; effective July 1, 2008 for fuel
purchased on or after that date; SB 3, s. 12( b), S. L. 07- 397. The rate is further reduced
from 0.5% to 0.3%; effective July 1, 2009 for fuel purchased on or after that date; SB 3,
45
s. 12( c), S. L. 07- 397. The section is repealed and purchases of fuel by manufacturers
are exempt from tax; effective July 1, 2010; SB 3, s. 12( d), S. L. 07- 397.)
G. S. 105- 187.51C( c) – Forfeiture of Privilege Tax Imposed on Datacenter
Machinery and Equipment: This subdivision is revised to replace some statutory
references that were repealed. Currently, in the event of forfeiture, a credit of privilege
tax is allowed against the additional sales and use tax due. For clarification, the credit
will reduce the amount forfeited, and the interest applies only to the reduced amount.
( Effective August 7, 2009; SB 509, s. 17, S. L. 09- 445.)
SOLID WASTE DISPOSAL TAX – ARTICLE 5G
G. S. 105- 187.63 – Use of Solid Waste Disposal Tax Proceeds: This section is
amended to exclude from the distribution a city or county who is served by a regional
solid waste management authority established under Article 22 from the Solid Waste
Disposal Tax distribution.
( Effective August 26, 2009; SB 838, s. 4, S. L. 09- 484.)
46
PROPERTY TAX
Property Tax
G. S. 105- 273( 3a) — Definition of Builder:
Defines “ builder” as a taxpayer licensed as a general contractor under G. S. 87- 1 and
engaged in the business of buying real property, making improvements to it and then
reselling it.
( Effective for taxes imposed for taxable years beginning on or after July 1, 2009;
Repealed effective for taxes imposed for taxable years beginning July 1, 2013; HB 852,
s. 1, S. L. 2009- 308.)
G. S. 105- 273( 6) — Definition of Corporation: Adds a new section which defines a
corporation as an organization having capital stock represented by shares or an
incorporated, nonprofit organization.
( Effective August 4, 2009; SB 509, s. 20, S. L. 2009- 445.)
G. S. 105- 275 — Property Classified and Excluded From the Tax Base:
Makes technical change to the language.
( Effective August 4, 2009; SB 509, s. 21, S. L. 2009- 445.)
G. S. 105- 277.1( d) — Homestead Exclusion:
Removes the term “ as tenants by the entirety” as it relates to husband and wife. Treats
all types of husband and wife ownership the same for the exclusion.
( Effective for taxes imposed for taxable years beginning on or after January 1, 2009; SB
509, s. 22 ( a), S. L. 2009- 445.)
G. S. 105- 277.1B — Property Tax Homestead Circuit Breaker:
Clarifies the language as follows:
1. Changes the requirement that the owner must owned and occupied the
property as a permanent residence for at least five consecutive years to
the requirement that the owner has owned the residence for five
consecutive years and has occupied the property for at least five years.
Makes other technical changes to the ownership and occupancy
requirement.
SECTION 4
47
2. Makes it clear that the taxpayer can only defer the principal amount of the
tax for the current year.
3. Clears up the deferred taxes language.
4. Makes it clear that the tax collector only has to send notice of deferred
taxes to the mailing address of the residence on which the taxes of been
deferred.
( Effective for taxes imposed for taxable years beginning on or after January 1, 2009; SB
509, s. 22( b), S. L. 2009- 445.)
G. S. 105- 277.1C — Disabled Veteran Property Tax Homestead Exclusion:
Clarifies the language as follows:
1. Clarifies the definition of a disabled veteran to include all veterans whose
service at separation was honorable or under honorable conditions.
2. Changes the language concerning a surviving spouse

NORTH CAROLINA
DEPARTMENT OF REVENUE
2009 TAX LAW CHANGES
OFFICE OF THE ASSISTANT SECRETARY
FOR TAX ADMINISTRATION
501 N. Wilmington Street
PO Box 871
Raleigh, NC 27602- 0871
PREFACE
This document is designed for use by personnel in the North Carolina Department of
Revenue. It is available to those outside the Department as a resource document. It
gives a brief summary of the tax law:
• changes made by prior General Assemblies that take effect for tax year 2009, as
well as,
• changes made by the 2009 General Assembly, regardless of when they take
effect.
The local sales and use tax changes follow the State sales and use tax changes. The
document does not include law changes that affect the Department of Revenue but do
not affect the tax laws.
For further information on a tax law change, refer to the legislation that made the
change. Administrative rules, bulletins, directives, and other instructions issued by the
Department, as well as opinions issued by the Attorney General’s Office, may provide
further information on the application of a tax law change.
Michael Houser
Acting Assistant Secretary
for Tax Administration
TABLE OF CONTENTS
Section 1 - PERSONAL TAXES
Individual Income Tax
G. S. 105- 134.2A – Income Tax Surtax 1
G. S. 105- 134.6( b)( 17a) – Future Deduction for Bonus Depreciation Add- Back 2
G. S. 105- 134.6( b)( 20) – Future Deduction for Deferred Income Add- Back 2
G. S. 105- 134.6( c)( 8a) - Bonus Depreciation Add- Back 2
G. S. 105- 134.6( c)( 11) - Real Property Tax Add- Back by Nonitemizers 3
G. S. 105- 134.6( c)( 12) - Motor Vehicle Sales Tax Add- Back 3
G. S. 105- 134.6( c)( 13) – Addition to Federal Taxable Income for Amounts
Excluded as Deferred Income 3
G. S. 105- 134.6( c)( 14) – Add- Back of Deduction for Original Issue Discount on an
Applicable High Yield Discount Obligation 4
G. S. 105- 151.12 – Credit for Certain Real Property Donations 4
G. S. 105- 151.29 – Credit for Qualifying Expenses of a Production Company 4
G. S. 105- 151.31 – Refundable Earned Income Tax Credit Increased 5
Tax Credits for Qualified Business Investments
G. S. 105- 163.011( b),( b1),( c), and 105- 163.012( a) – Clarifying Changes 5
Withholding Tax
G. S. 105- 163.1 – Article 4A Withholding Definitions 5
G. S. 105- 163.3 – Requirement to Withhold on Contractors Identified by an Individual
Taxpayer Identification Number ( ITIN) 6
Job Development Investment Grant Program
G. S. 143B, Article 10, Part 2G 7
Lottery Act
G. S. 18C- 134( b) – Notification 7
G. S. 18C- 134( e) – Confidentiality 7
Section 2 - CORPORATE, EXCISE AND INSURANCE
TAXES
Privilege Taxes
G. S. 105- 40( 7A) – Clarifying Change 8
G. S. 105- 41( a)( 12) – Clarifying Change 8
G. S. 14- 344.1 – Internet Ticket Resellers, Sunset repealed 8
Tobacco Products Tax
Chapter 58, Article 92 – Fire Safe Cigarettes 9
G. S. 58- 92- 15( p) – Fire Safe Cigarettes Standards Clarification 9
G. S. 105- 113.4( 3) – Definition of Distributor 9
G. S. 105- 113.4( 6) – Definition of Manufacturer 9
Tobacco Products Tax
G. S. 105- 113.4( 14) – Technical Change 9
G. S. 105- 113.4D – Floor Tax Extended to Other Tobacco Products 10
G. S. 105- 113.5 – Tax on Cigarettes 10
G. S. 105- 113.35 – Tax on Other Tobacco Products 10
G. S. 105- 113.35( d1) – Sales Between Integrated Wholesale Dealers Prohibited 10
G. S. 105- 113.37( d) – Shipping Report 10
G. S. 105- 113.40A – Use of Tax Proceeds 10
Alcoholic Beverage License and Excise Taxes
G. S. 105- 113.80( a) – Beer Excise Tax Increase 11
G. S. 105- 113.80( b) – Wine Excise Tax Increase 11
G. S. 105- 113.80( c) – Liquor Excise Tax Increase 11
G. S. 105- 113.81A – Distribution to NC Wine & Grape Growers Council Repealed 11
G. S. 105- 113.82( a) – Distribution of Alcoholic Beverage Taxes 11
G. S. 105- 113.82 – Temporary Additional Reduction in Distribution of Alcoholic
Beverage Taxes 11
Franchise Tax
G. S. 105- 122( b1) – Technical Change 12
G. S. 105- 122( b)( 1a)– Billings in Excess of Costs 12
Business and Energy Tax Credits
G. S. 105- 129.15( 7) e. and G. S. 105- 129.15( 7) f. – Renewable Energy Property
Definition Expanded 12
G. S. 105- 129.16A( c)( 2) d. – Renewable Energy Property Credit Ceiling 12
G. S. 105- 129.16A( e) – Sunset for Renewable Energy Property 13
G. S. 105- 129.17( a) – Tax Election 13
Tax Credits for Growing Businesses
G. S. 105- 129.27( f) – No Double Credit 13
G. S. 105- 129.83( m) – No Double Benefit 13
G. S. 143B- 437.08( i) – Development Tier Designation 13
Corporation Income Tax
G. S. 105- 130.3B – Income Tax Surtax 14
G. S. 105- 130.4( h) – Conforming Change 14
G. S. 105- 130.4( i) – Conforming Change 14
G. S. 105- 130.4( s1) – Special Apportionment Formula for a Qualified Capital
Intensive Corporation 14
G. S. 105- 130.4( t1) – Technical Change 15
G. S. 105- 130.5( a)( 15a) – Bonus Depreciation Add- Back 15
G. S. 105- 130.5( a)( 21) – Deferred Cancellation of Indebtedness Add- Back 16
G. S. 105- 130.5( a)( 22) – Original Issue Discount on Applicable High Yield
Discount Obligation 16
G. S. 105- 130.5( b)( 21a) - Future Deduction for 50% First- Year Accelerated
Depreciation Add- Back 16
G. S. 105- 130.5( b)( 25) – Deduction for Deferred Cancellation of Indebtedness 16
G. S. 105- 130.16( a) – Conforming and Technical Changes 17
G. S. 105- 130.18 – Failure to File Returns 17
G. S. 105- 130.34( a) – Clarifying Change 17
G. S. 105- 130.47( b1) – Alternative Credit for Qualifying Expenses of a
Production Company 17
Corporation Income Tax
G. S. 105- 130.47( h) – Technical Change 18
Insurance Gross Premiums Tax
G. S. 58- 6- 25 – Insurance Regulatory Charge 18
G. S. 105- 228.5B – Transfer of Proceeds to High Risk Pool 18
General Administration
G. S. 105- 228.90( b)( b1) – Reference to the Internal Revenue Code Updated 18
G. S. 105- 259( b) – Disclosure of Selection Standards 19
G. S. 105- 259( b)( 20) – Disclosure to the Environmental Management Commission 19
G. S. 105- 259( b)( 39) – Disclosure to State Treasurer 19
Section 3 - SALES AND USE TAX
Sale and Use Tax
G. S. 105- 164.3 – Definitions 21
G. S. 105- 164.4( a) – Increase in State Sales Tax Rate 25
G. S. 105- 164.4( a)( 6b) – Tax on Digital Property 26
G. S. 105- 164.4( a)( 1j) – Tax on Electricity Sold to Manufacturers and Farmers 26
G. S. 105- 164.4B( d) – Sourcing Principles 27
G. S. 105- 164.6 – Complementary Use Tax 27
G. S. 105- 164.6A( a) – Voluntary Collection Agreements 27
G. S. 105- 164.7 – Retailer to Collect Sales Tax from Purchaser as Trustee for State 27
G. S. 105- 164.8 – Retailer’s Obligation to Collect Tax; Remote Sales Subject to Tax 28
G. S. 105- 164.11( e) – Reliance on Written Advice 28
G. S. 105- 164.13 – Exemptions and Exclusions 28
G. S. 105- 164.13B( a) – State Sales Tax Exemption for Certain Bakery Items 30
G. S. 105- 164.14( b) – Nonprofit Entities and Hospital Drugs 31
G. S. 105- 164.14( b)( 1) – Nonprofit Entities and Hospital Drugs 31
G. S. 105- 164.14( b)( 2a) – Nonprofit Entities and Hospital Drugs 31
G. S. 105- 164.14( c)( 23) – Certain Governmental Entities 31
G. S. 105- 164.14( j)( 2) n. – Certain Industrial Facilities 31
G. S. 105- 164.15A( a) – Effective Date of Tax Changes on Services and Items
Taxed at Combined General Rate 32
G. S. 105- 164.16 – Returns and Payment of Taxes 32
G. S. 105- 164.16( d) – Use Tax on Out of State Purchases 32
G. S. 105- 164.16( e) – Simultaneous State and Local Changes 32
G. S. 105- 164.22 – Record- Keeping Requirements, Inspection Authority, and
Effect of Failure to Keep Records 32
G. S. 105- 164.23 – Consumer Must Keep Records 33
G. S. 105- 164.24 – Separate Accounting Required 33
G. S. 105- 164.25 – Wholesale Merchant Must Keep Records 33
G. S. 105- 164.26 – Presumption that Sales are Taxable 33
G. S. 105- 164.27A( a) – Direct pay permit 33
G. S. 105- 164.28 – Certificate of Resale 33
G. S. 105- 164.28A( a) – Other exemption certificates 33
G. S. 105- 164.29( a) – Application for certificate of registration 34
G. S. 105- 164.31 – Complete Records Must Be Kept for Three Years 34
G. S. 105- 164.32 – Incorrect returns; estimate 34
G. S. 105- 164.44E – Transfer to the Dry- Cleaning Solvent Cleanup Fund 34
G. S. 105- 164.44F – Distribution of part of telecommunications taxes to cities 34
G. S. 105- 164.44G – Distribution of part of tax on modular homes 34
G. S. 105- 164.44I – Distribution of part of sales tax on video programming and
telecommunications 35
Chapter 323 of the 2007 Session Laws- Transfer for Wildlife Resources 35
Local and Sales and Use Tax
G. S. 105- 472( b)( 3) – Distribution Between Counties and Cities 35
G. S. 105- 487 – Use of Additional Tax Revenue by Counties 35
G. S. 105- 501 – Distribution of Second One- Half Percent Local Sales and Use Tax 35
G. S. 105- 502 – Use of Additional Tax Revenue by Counties 36
G. S. 105- 502– ( Effective October 1, 2009) Use of Additional Tax Revenue by Counties 36
G. S. 105- 505 – Local Government Sales and Use Tax for Public Transportation 36
G. S. 105- 506 – Definitions 36
G. S. 105- 507 – Limitations 37
G. S. 105- 508 – Local Election on Adoption 37
G. S. 105- 509 – Levy and Collection 37
G. S. 105- 510 – Distribution and Use of Taxes 37
G. S 105- 510.1 – Applicability 37
G. S. 105- 510.5 – Special Districts 37
G. S. 105- 510.6 – Limitations 37
G. S. 105- 510.7 – Distribution and Use of Taxes 38
G. S. 105- 510.8 – Local Election on Adoption of Sales and Use Tax 38
G. S. 105- 510.9 – Levy and Collection of Sales and Use Tax 38
G. S. 105- 510.10 – Local Election on Adoption of Sales and Use Tax 38
G. S. 105- 510.11 – Levy and Collection of Sales and Use Tax 39
G. S. 105- 510.12 – Applicability 39
G. S. 105- 510.13 – Limitations 39
G. S. 105- 510.14 – Local Election on Adoption of Sales and Use Tax 39
G. S. 105- 510.15 – Levy and Collection of Sales and Use Tax 39
G. S. 105- 510.16 – Distribution and Use of Taxes 40
G. S. 105- 515 through 105- 520 – Third One- Half Percent Local Sales and
Use Tax Repealed 40
G. S. 105- 522 – City Hold Harmless for Repealed Local Taxes 40
G. S. 105- 522( a)( 2) – City Hold Harmless for Repealed Local Taxes 41
G. S. 105- 523 – County Hold Harmless for Repealed Local Taxes 41
G. S. 105- 523( b)( 2) – County Hold Harmless for Repealed Local Taxes 42
G. S. 105- 523( b)( 3) – County Hold Harmless for Repealed Local Taxes 42
G. S. 105- 538 – Administration of Taxes 42
Chapter 323 of the 2007 Session Laws – Reduction of Third One- Half Percent Local
Sales and Use Tax 42
Chapter 323 of the 2007 Session Laws – Article 44 Title 42
Chapter 1096 of the Session Laws, as Amended – Mecklenburg First 1% Sales Tax Act 43
Highway Use Tax – Article 5A
G. S. 105- 187.3( b1) – Retail Value 43
G. S. 105- 187.6( a) – Exemptions 43
G. S. 105- 187.6( a) 7 – Exemptions 43
Scrap Tire Disposal Tax – Article 5B
G. S. 105- 187.19( b) – Use of Scrap Tire Tax Proceeds 44
Dry- Cleaning Solvent Tax – Article 5D
G. S. 105- 187.35 – Sunset of Dry- Cleaning Solvent Tax 44
Manufacturing Fuel and Certain Machinery and
Equipment – Article 5F
G. S. 105- 187.50 – Definitions 44
G. S. 105- 187.51A – Privilege Tax on Manufacturing Fuel 44
G. S. 105- 187.51C( c) – Forfeiture of Privilege Tax Imposed on Datacenter
Machinery and Equipment 45
Solid Waste Disposal Tax- Article 5G
G. S. 105- 187.63 – Use of Solid Waste Disposal Tax Proceeds 45
Section 4 – PROPERTY TAX
Property Tax
G. S. 105- 273( 3a) — Definition of Builder 46
G. S. 105- 273( 6) — Definition of Corporation 46
G. S. 105- 275 — Property Classified and Excluded From the Tax Base 46
G. S. 105- 277.1( d) — Homestead Exclusion 46
G. S. 105- 277.1B — Property Tax Homestead Circuit Breaker 46
G. S. 105- 277.1C — Disabled Veteran Property Tax Homestead Exclusion 47
G. S. 277.1D — Inventory Property Tax Deferral 47
G. S. 105- 277.1F( a) — Tax Deferral 47
G. S. 105- 277.14 — Repealed 48
G. S. 105- 277.17 — Clarify the Valuation of Community Land Trust Property 48
G. S. 105- 278.6( e) — Low or Moderate- Income Housing 48
G. S. 105- 282.1( a) — Application for Property Tax Exemption or Exclusion 48
G. S. 105- 282.1( a)( 2) c — Application for Property Tax Exemption or Exclusion 48
G. S. 105- 286 — Postpone a 2009 General Reappraisal 49
G. S. 105- 317.2 — Report on Transfers of Real Property 49
G. S. 105- 330 — Motor Vehicles 49
G. S. 105- 361( a) — Property Tax Certificate 50
G. S. 160A- 215.2 — Heavy Equipment Gross Receipts Tax in Lieu of Property Tax 50
G. S. 160A- 417 — Payment of Delinquent Property Taxes 50
G. S. 161- 31( b) — Payment of Delinquent Property Taxes 50
Section 5 – MOTOR FUELS
Motor Fuels
G. S. 105- 449.45( a) – Reporting Requirement 51
G. S. 105- 449.47A – Technical 51
Motor Fuels
G. S. 105- 449.72 – Bonding Requirement Exemption 51
G. S. 105- 449.80( a) – Fuel Tax Rate Floor 51
G. S. 105- 449.81 – Taxation of Fuel Grade Ethanol 51
G. S. 105- 449.83A – Clarifying 51
G. S. 105- 449.95 – Recodification 51
G. S. 105- 449.105B – Refund Filing Requirement 52
G. S. 105- 449.115 – Clarifying 52
G. S. 105- 449.121( b)( 2) – Technical 52
G. S. 105- 449.136 – Technical 52
1
PERSONAL TAXES
Individual Income Tax
G. S. 105- 134.2A – Income Tax Surtax:
This section was added to impose a surtax on a taxpayer’s North Carolina individual
income tax as computed under G. S. 105- 134.2. The surtax is due if North Carolina
taxable income is greater than the amount shown below for the taxpayer’s filing status:
Married filing jointly/ qualifying widow( er) $ 100,000
Head of household $ 80,000
Single $ 60,000
Married filing separately $ 50,000
The surtax is in addition to the income tax imposed by G. S. 105- 134.2 and is computed
by multiplying North Carolina income tax by the applicable percentage shown in the
table below.
Surtax Percentage Table
Applicable
Filing Status NC Taxable Income Percentage
Married Filing Jointly/ Greater than $ 100,000 but does not exceed $ 250,000 2%
Qualifying Widow( er) Greater than $ 250,000 3%
Head of Household Greater than $ 80,000 but does not exceed $ 200,000 2%
Greater than $ 200,000 3%
Single Greater than $ 60,000 but does not exceed $ 150,000 2%
Greater than $ 150,000 3%
Married Filing Separately Greater than $ 50,000 but does not exceed $ 125,000 2%
Greater than $ 125,000 3%
Notwithstanding G. S. 105- 163.15, no addition to tax may be made for tax years beginning
on or after January 1, 2009 and before January 1, 2011, with respect to an underpayment
of income tax to the extent the underpayment was created or increased by the surtax.
SECTION 1
2
( Effective for taxable years beginning on or after January 1, 2009 and expires for
taxable years beginning on or after January 1, 2011; SB 202, ss. 27A. 1.( b) and ( c); S. L.
09- 451.)
G. S. 105- 134.6( b)( 17a) – Future Deduction for Bonus Depreciation Add- Back: This
subdivision was amended to provide a deduction on future income tax returns for the
50% additional first- year depreciation deduction required to be added to federal taxable
income under G. S. 105- 134.6( c)( 8a). A taxpayer may deduct 20% of the total amount
of bonus depreciation added to federal taxable income in taxable year 2008 in each of
the first five taxable years beginning on or after January 1, 2009. For taxpayers who
made the addition for bonus depreciation on their 2009 returns, the deduction applies to
the first five taxable years beginning on or after January 1, 2010.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( e),
S. L. 09- 451.)
G. S. 105- 134.6( b)( 20) – Future Deduction for Deferred Income Add- Back: Under
the American Recovery and Reinvestment Act of 2009, P. L. 111- 5, certain taxpayers
may elect to defer reporting income from cancellation of debt in the current year and
instead report the income ratably over a five- year period beginning in 2014. The
General Assembly chose not to adopt this provision of federal law. Instead, G. S. 105-
134.6( c)( 13) requires an addition to federal taxable income in 2009 and 2010 for any
amount of the income that was deferred.
This section was added to provide a future deduction from federal taxable income for
the amount of income that was deferred under IRC section 108( i)( 1). If the deferred
income is added back on the 2009 or 2010 return, the deduction on the State return is
allowed ratably over a five- year period beginning in 2014.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( e),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 8a) - Bonus Depreciation Add- Back: The 2008 General Assembly
added this subdivision to require a taxpayer to add to federal taxable income a
percentage of the 50% first- year bonus depreciation deduction allowed for federal
income tax purposes under § 168( k) of the Internal Revenue Code under the Economic
Stimulus Act of 2008. The applicable percentage is 85% of the bonus depreciation for
the tax year 2008. Any taxpayer who claimed the bonus depreciation for federal
purposes for the tax year 2007 and whose North Carolina return also reflected that
deduction must also add back 85% of the deduction claimed for the tax year 2007 on
the 2008 tax return.
The subdivision was amended during the 2009 Session of the General Assembly to
extend the provision to include property placed in service before January 1, 2010.
Additionally, a taxpayer must add to federal taxable income 85% of the 50% additional
depreciation permitted pursuant to IRC § 168( n) under the Emergency Economic
3
Stabilization Act of 2008. The provision also applies to property placed in service after
December 31, 2007, but before January 1, 2010. Any taxpayer who claimed a § 168( n)
deduction for federal purposes on a 2008 return and whose North Carolina return also
reflected that deduction must add back 85% of the deduction claimed for the tax year
2008 on the 2009 return.
The adjustments do not result in a difference in basis of the affected assets for State
and federal income tax purposes.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 11) - Real Property Tax Add- Back by Nonitemizers: This
subdivision was added by the 2009 General Assembly to require a taxpayer to add to
federal taxable income the additional real property tax deduction claimed by a taxpayer
under IRC section 63( c)( 1)( C). This section of the Code allows a taxpayer who claims
the standard deduction to claim an additional deduction for real property taxes paid.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6. ( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 12) - Motor Vehicle Sales Tax Add- Back: The American Recovery
and Reinvestment Act of 2009, P. L. 111- 5, allows taxpayers to claim a deduction for the
sales or excise taxes paid for the purchase of new motor vehicles made on or after
February 17, 2009 and before January 1, 2010. The deduction is allowable as an
addition to the federal standard deduction under IRC section 63( c)( 1)( E) or as an
itemized deduction under section 164( a)( 6).
The General Assembly chose not to adopt this provision of federal law. Therefore, this
subdivision was added to require an addition to federal taxable income for the motor
vehicle sales and excise taxes deducted for federal income tax purposes under IRC
sections 63( c)( 1)( E) or 164( a)( 6).
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 13) – Addition to Federal Taxable Income for Amounts Excluded
as Deferred Income: Generally, when a debt is settled for less than the amount owed,
cancellation of indebtedness income is realized by the debtor and must be included in
the debtor’s federal gross income. However, the American Recovery and Reinvestment
Act of 2009, P. L. 111- 5, allows certain taxpayers to elect to recognize cancellation of
indebtedness income ratably over five years beginning in 2014, for specified types of
debt repurchased by a business after December 31, 2008 and before January 1, 2011.
The General Assembly chose not to follow this provision of federal law. Therefore, this
subdivision was added to require an addition to federal taxable income for the amount
of income deferred under IRC section 108( i)( 1) from the cancellation of indebtedness in
4
connection with reacquisition of an applicable debt instrument. However, G. S. 105-
134.6( b)( 20) was added to provide a future deduction from federal taxable income for
the deferred income added back on the 2009 or 2010 return. The deduction on the
State return is allowed ratably over a five- year period beginning in 2014.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 134.6( c)( 14) – Add- Back of Deduction for Original Issue Discount on an
Applicable High Yield Discount Obligation: The American Recovery and
Reinvestment Act of 2009, P. L. 111- 5, includes a provision suspending the rules for the
applicable high yield debt obligation ( AHYDO) under IRC section 163( e)( 5)( F) for certain
debts issued after September 30, 2008 and before January 1, 2010. As a result,
corporate and certain partnership debt that would have otherwise created deferred or
non- deductible interest will instead provide immediate tax deductions to the issuer
under general interest deductibility principles.
The General Assembly chose not to follow this provision of the Act. Therefore, an
addition to federal taxable income is required for the amount deducted on the federal
return.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( f),
S. L. 09- 451.)
G. S. 105- 151.12 – Credit for Certain Real Property Donations: This section was
amended to clarify that the credit allowed to individuals and pass- through entities for
qualifying donations of real property applies to donations made during the taxable year.
( Effective August 7, 2009; SB 509, ss. 9.( d) and ( e), S. L. 09- 445.)
G. S. 105- 151.29 – Credit for Qualifying Expenses of a Production Company:
This section has been amended to allow a taxpayer that is a production company and
has qualifying expenses of at least two hundred fifty thousand dollars ($ 250,000) with
respect to a production, an alternative credit in lieu of the credit allowed under
subsection ( b) of this section.
Subsection ( b) allows a credit equal to 15% of the production company’s qualifying
expenses incurred with respect to the production. The alternative credit added in
subsection ( b1) allows a credit equal to 25% of the production company’s qualifying
expenses less the difference between the amount of tax paid on purchases subject to
tax under G. S. 105- 187.51 and the amount of sales and use tax that would have been
due had the purchases been subject to the sales and use tax at the combined rate
under G. S. 105- 164.3. A taxpayer must elect to claim the credit allowed under
subsection ( b) or subsection ( b1) at the time the return on which the credit is claimed is
filed. The election is binding.
5
The alternative credit allowed by subsection ( b1) is effective for taxable years beginning
on or after January 1, 2010, and applies to qualifying expenses occurring on or after
that date.
( Effective for tax years beginning on or after January 1, 2010; SB 943, ss. 2 and 3, S. L.
09- 529.)
G. S. 105- 151.31 – Refundable Earned Income Tax Credit Increased: This section,
which was added by the 2007 General Assembly, provided a refundable earned income
tax credit equal to 3.5% of the federal earned income tax credit under Section 32 of the
Internal Revenue Code. The credit was effective for tax years beginning on or after
January 1, 2008.
( Effective for taxable years beginning on or after January 1, 2008, and expires for
taxable years beginning on or after January 1, 2013; HB 1473, ss. 31.4( a) and ( b); S. L.
07- 323.)
This section was subsequently amended by the 2008 Session Laws to increase the
earned income tax credit from 3.5% to 5% of the amount of credit the individual qualified
for under section 32 of the Code. This change is effective for taxable years beginning
on or after January 1, 2009.
( Effective for taxable years beginning on or after January 1, 2009; HB 2436, s. 28.9.( a),
S. L. 08- 107.)
Tax Credits for Qualified Business Investments
G. S. 105- 163.011( b),( b1),( c), and 105- 163.012( a) – Clarifying Changes: These
subdivisions were rewritten to clarify that the maximum tax credit for investments made
in a single tax year cannot exceed $ 50,000 and that any amount of credit exceeding the
$ 50,000 limit is not considered “ unused” credit for purposes of carryover provisions of
the credit.
( Effective for tax years beginning on or after January 1, 2009; SB 509, ss. 9( a) and ( b),
S. L. 09- 445.)
Withholding Tax
G. S. 105- 163.1 – Article 4A Withholding Definitions: This section sets out new or
revised definitions to conform to the new withholding requirement on contractors
identified by an Individual Taxpayer Identification Number ( ITIN).
6
The definition of “ Compensation” was revised to include subdivision 1( b) stating that
compensation includes the “ consideration a payer pays to an ITIN holder who is a
contractor and not an employee for services performed in this State.”
The definition of “ Payer” was revised to include subdivision ( 10b) stating that a payer is
a person who, in the course of a trade or business, pays compensation to an “ ITIN
holder who is a contractor and not an employee for services performed in this State.”
The definition for “ contractor” in subdivision 2 was repealed.
The following definitions were added:
( 6a) ITIN contractor - An ITIN holder who performs services in this State for
compensation other than wages.
( 6b) ITIN holder – A person whose taxpayer identification number is an Individual
Taxpayer Identification Number ( ITIN).
( 7a) Nonresident contractor – Either of the following:
a. A nonresident individual who performs in this State for compensation other than
wages any personal services in connection with a performance, an
entertainment, an athletic event, a speech, or the creation of a film, radio, or
television program.
b. A nonresident entity that provides for the performance in this State for
compensation any personal services in connection with a performance, an
entertainment, an athletic event, a speech, or the creation of a film, radio, or
television program.
The definition of “ Payer” was revised to include subdivision ( 10b) stating that a payer is
a person who, in the course of a trade or business, pays compensation to “ an ITIN
holder who is a contractor and not an employee for services performed in this State.”
( Effective January 1, 2010; SB 1006, s. 1; S. L. 09- 476.)
G. S. 105- 163.3 – Requirement to Withhold on Contractors Identified by an
Individual Taxpayer Identification Number ( ITIN): This section was amended to
include a requirement to withhold income tax on contractors identified by an ITIN if the
contractor performs services in North Carolina for compensation other than wages. An
ITIN is issued by the IRS to a person who is required to have a taxpayer identification
number but does not have and is not eligible to obtain a social security number.
A payer who pays compensation other than wages of more than $ 1,500 to an ITIN
holder is required to withhold 4% of the compensation paid. The payer is required to file
a withholding return and pay the amount withheld on a quarterly, monthly, or
semiweekly basis pursuant to the requirements in G. S. 105- 163.6.
7
( Effective January 1, 2010; SB 1006, ss. 2 and 3; S. L. 09- 476.)
Job Development Investment Grant Program
G. S. 143B, Article 10, Part 2G – The Job Development Investment Grant Program is
an economic development tool for new and expanding businesses in North Carolina
whereby eligible companies selected by an Economic Investment Committee of State
officials are provided a grant equal to a certain percentage of the company’s income tax
withholding payments. The statute was amended to extend the authority of the
Economic Investment Committee to award new grants with eligible companies until
January 1, 2016 ( was January 1, 2010).
Technical changes were also made to clarify that the maximum liability for all grants
awarded in any single year is capped at $ 15 million and allows the Committee to reduce
the amount or term of a grant by formally approving a motion, instead of executing an
amendment to the grant agreement for businesses who fail to meet or comply with a
grant requirement. A grant shall not exceed twelve years starting the first year a grant
payment is made.
( Effective July 31, 2009; HB 1516; ss. 1 through 6, S. L. 09- 394.)
Lottery Act
G. S. 18C- 134( b) – Notification: This subsection was amended to provide that a
claimant agency seeking collection of a debt is automatically enrolled in the Lottery
Commission’s debt set- off program if it is enrolled in the Department of Revenue set- off
program. In addition, the Department of Revenue will provide to the Commission on a
periodic basis all updates to its debt set- off program.
( Effective July 27, 2009; HB 205, s. 9, S. L. 09- 357.)
G. S. 18C- 134( e) – Confidentiality: This subdivision was amended to make it lawful for
the Department of Revenue to exchange information with the Lottery Commission and a
debtor with respect to debt set- off requirements.
( Effective July 27, 2009; HB 205, s. 10, S. L. 09- 357.)
8
CORPORATE, EXCISE AND
INSURANCE TAXES
PRIVILEGE TAXES
G. S. 105- 40( 7A) – Clarifying Change: This subsection was rewritten to clarify that, for
purposes of exemption from the gross receipts tax on entertainment, a “ qualifying arts
organization” is any one whose primary purpose is to produce, present, or support
music, dance, theatre, literature, or visual arts and is exempt from income tax under
G. S. 105- 130.11( a)( 3).
( Effective August 28, 2009; HB 274, s. 5.1, S. L. 09- 550.)
G. S. 105- 41( a)( 12) – Clarifying Change: This subdivision was rewritten to provide that
the privilege license tax on home inspectors applies to an individual licensed under the
Home Inspector Licensure Act to clarify that associate home inspectors are also subject
to the tax. S. L. 2008- 206 imposed an annual State privilege license tax of $ 50 on a
licensed home inspector but it failed to mention associate home inspectors. Without
this change, an associate home inspector would be subject to local privilege license tax
in each city that levies the tax.
( Effective August 7, 2009; SB 509, s. 1, S. L. 09- 445.)
G. S. 14- 344.1 – Internet Ticket Resellers, Sunset repealed: The 2008 General
Assembly enacted S. L. 2008- 206 to legislate the activity of reselling tickets to
admissions over the Internet at more than the face value of the ticket. The amusement
gross receipts tax is not imposed on the resale of tickets. The Internet seller of the
tickets is required to file a monthly report with the Department of Revenue. The
legislation was set to expire June 30, 2009. This legislation removed the sunset.
( Effective July 6, 2009; HB 309, s. 1, S. L. 09- 255 .)
SECTION 2
9
TOBACCO PRODUCTS TAX
Chapter 58, Article 92 – Fire Safe Cigarettes: This new article adopts a cigarette fire
safety standard already implemented in New York and other states as a safety measure
to reduce the likelihood that cigarettes will cause fires and result in deaths, injuries, and
property damage. The manufacturer must test cigarettes and file a certification with the
Department of Insurance that the cigarettes meet the safety standards. Each package
must be marked to indicate compliance with the safety act. Inventory on hand is
exempt from the marking requirement. However, the retailer or wholesaler must have
documentation to confirm that the cigarettes were purchased prior to the effective date
and that the quantity purchased was comparable to the cigarettes purchased during the
same period of the prior year. The act requires distributors, agents, and retail dealers to
submit to inspection of the products by the Commissioner of Insurance, the Secretary of
Revenue, or the Attorney General, and their employees. The act allows for seizure of
cigarettes in violation of this act by any law enforcement personnel or duly authorized
representative of the Commissioner of Insurance. Seized contraband is to be turned
over to the Department of Revenue for destruction after the manufacturer is given the
opportunity to inspect the cigarettes.
( Effective January 1, 2010; HB 1785, s. 1, S. L. 07- 451.)
G. S. 58- 92- 15( p) – Fire Safe Cigarettes Standards Clarification: This subsection
was amended to clarify that the standards the Commissioner is to use to implement
Article 58 are in accordance with the “ New York Fire Safety Standards for Cigarettes” as
it read on August 24, 2007.
( Effective January 1, 2010; SB 884, s. 1, S. L. 09- 490.)
G. S. 105- 113.4( 3) – Definition of Distributor: This subsection was amended to
remove from the definition of distributor “ one who causes cigarettes to be manufactured
or produced.”
( Effective September 1, 2009; SB 777, s. 1, S. L. 09- 559.)
G. S. 105- 113.4( 6) – Definition of Manufacturer: This subsection was amended to
expand the definition of manufacturer to include a person who manufactures or
contracts with another person to produce tobacco products and is the exclusive
purchaser of the products manufactured pursuant to that contract.
( Effective September 1, 2009; SB 777, s. 1, S. L. 09- 559.)
G. S. 105- 113.4( 14) – Technical Change: This subsection was rewritten to place the
requirements for meeting the definition of a wholesale dealer into two separate
subdivisions within the subsection.
( Effective September 1, 2009; SB 777, s. 1, S. L. 09- 559.)
10
G. S. 105- 113.4D – Floor Tax Extended to Other Tobacco Products: This new
section recodifies provisions formerly in G. S. 105- 113.7 that required a distributor
holding an inventory of cigarettes on the date of a rate increase to remit to the Secretary
within 20 days after the effective date of the increase an additional tax on that inventory
based on the difference between the former rate and the increased tax rate. As
rewritten, the provision applies to other tobacco products as well as cigarettes.
( Effective September 1, 2009; SB 202. s. 27A. 5.( b), S. L. 09- 451.)
G. S. 105- 113.5 – Tax on Cigarettes: This section was rewritten to increase the tax on
cigarettes from 1.75 cent to 2.25 cents per individual cigarette or 45 cents per pack of
twenty.
( Effective September 1, 2009; SB 202. s. 27A. 5.( a), S. L. 09- 451.)
G. S. 105- 113.35 – Tax on Other Tobacco Products: Subsection ( a) was rewritten to
increase the tax on other tobacco products from 10% to 12.8% of the cost price of the
products. Subsection ( e) was recodified as G. S. 105- 113.40A.
( Effective September 1, 2009; SB 202. s. 27A. 5.( c), S. L. 09- 451.)
G. S. 105- 113.35( d1) – Sales Between Integrated Wholesale Dealers Prohibited:
This new subdivision prohibits an integrated wholesale dealer from selling, borrowing,
loaning, or exchanging non- tax- paid other tobacco products to, from, or with other
integrated wholesales dealers.
( Effective September 1, 2009; SB 777, s. 2, S. L. 09- 559.)
G. S. 105- 113.37( d) – Shipping Report: This new subdivision requires any person who
transports other tobacco products on the public highways, roads, or streets of this State
to file a report, upon notice of the Secretary, in a form prescribed by and containing the
information required by the Secretary.
( Effective September 1, 2009; SB 777, s. 3, S. L. 09- 559.)
G. S. 105- 113.40A – Use of Tax Proceeds: This new section recodifies provisions
formerly in G. S. 105- 113.35( e). However, the new statute contains an error. As written,
net proceeds of the tax collected under this Article would be allocated between the
General Fund and the University Cancer Research Fund, resulting in part of the tax on
other tobacco products (“ OTP”) and all of the tax collected on cigarettes being credited
to the University Cancer Research Fund. However, the legislature intended the statute
to read “ collected under this “ Part.” The intent of the section is to credit 3% of the cost
price of other tobacco products to the General Fund and the remainder of the net tax on
other tobacco products to the University Cancer Research Fund. The Department will
11
administer the statute as the legislature intended and seek a technical correction during
the next legislative session.
( Effective September 1, 2009; SB 202. s. 27A. 5.( d), S. L. 09- 451.)
ALCOHOLIC BEVERAGE LICENSE AND EXCISE TAXES
G. S. 105- 113.80( a) – Beer Excise Tax Increase: This subsection was rewritten to
increase the excise tax on malt beverages from 53.177 cents per gallon to 61.71 cents
per gallon.
( Effective for malt beverages first sold or otherwise disposed of on or after September 1,
2009; SB 202. s. 27A. 4.( a), S. L. 09- 451.)
G. S. 105- 113.80( b) – Wine Excise Tax Increase: This subsection was rewritten to
increase the excise tax on unfortified wine from 21 cents per liter to 26.34 cents per liter
and to increase the excise tax on fortified wine from 24 cents per liter to 29.34 cents per
liter.
( Effective for wine first sold or otherwise disposed of on or after September 1, 2009; SB
202. s. 27A. 4.( a), S. L. 09- 451.)
G. S. 105- 113.80( c) – Liquor Excise Tax Increase: This subsection was rewritten to
increase the excise tax on liquor sold in ABC stores from 25 percent to 30 percent of the
price of liquor.
( Effective September 1, 2009; SB 202, s. 27A. 4.( a), S. L. 09- 451.)
G. S. 105- 113.81A – Distribution to NC Wine & Grape Growers Council Repealed:
This section requiring the Department to transfer a designated amount of the excise tax
on unfortified wine to the NC Wine & Grape Growers Council is repealed.
( Effective July 1, 2009; SB 202, s. 14.19( f), S. L. 09- 451.)
G. S. 105- 113.82( a) – Distribution of Alcoholic Beverage Taxes: Subdivision ( 1) of
this subsection was rewritten to reduce the amount of excise tax on malt beverages
distributed to local governments from 23.75% to 20.47%. Subdivision ( 2) was rewritten
to reduce the amount of excise tax on unfortified wine distributed to local governments
from 62% to 49.44%. Subdivision ( 3) was rewritten to reduce the amount of excise tax
on fortified wine distributed to local governments from 22% to 18%.
( Effective September 1, 2009; SB 202. s. 27A. 4.( b), S. L. 09- 451.)
G. S. 105- 113.82 – Temporary Additional Reduction in Distribution of Alcoholic
Beverage Taxes: Notwithstanding the percentages of the excise taxes distributable to
12
local governments set out in G. S. 105- 113.82, for the excise taxes collected on
alcoholic beverages during the 12- month period ending March 31, 2010, the
percentages to be distributed to local governments are as follows:
Malt beverages – 7.24%
Unfortified wine – 18%
Fortified wine – 6.49%
( Effective September 1, 2009; SB 202. s. 27A. 4.( c), S. L. 09- 451.)
FRANCHISE TAX
G. S. 105- 122( b1) – Technical Change: This section was rewritten to move the
definitions from subsection ( b) to a newly created subsection ( b1). The current
subsection ( b) contains two different subdivision lists within the same subsection. This
change puts the defined terms, listed by subdivisions, into a new subsection.
( Effective August 7, 2009; SB 509, s. 2, S. L. 09- 445.)
G. S. 105- 122( b)( 1a)– Billings in Excess of Costs: This subdivision was added to
specifically exempt billings in excess of costs from surplus and undivided profits, thus
excluding the amount from the computation of the franchise tax capital stock base.
( Effective for taxable years beginning on or after January 1, 2010; SB 367, s. 1, S. L. 09-
422. Note: Franchise tax levied under G. S. 105- 122 is for the income year of the
corporation in which it becomes due.)
BUSINESS AND ENERGY TAX CREDITS
G. S. 105- 129.15( 7) e. and G. S. 105- 129.15( 7) f. – Renewable Energy Property
Definition Expanded: These two subdivisions were added to expand the definition of
renewable energy property to include geothermal heat pumps that use the ground or
ground water as a thermal energy source to heat or cool a structure and geothermal
equipment that uses internal heat from the earth as a substitute for traditional energy for
heating water or active space heating and cooling.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 1, S. L. 09-
548 .)
G. S. 105- 129.16A( c)( 2) d. – Renewable Energy Property Credit Ceiling: This
subdivision was added to establish a ceiling of $ 8,400 per installation of a geothermal
heat pump or geothermal equipment in residential property.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 2, S. L. 09-
548 .)
13
G. S. 105- 129.16A( e) – Sunset for Renewable Energy Property: This subsection was
amended to extend the sunset. The credit will expire for renewable energy property
placed in service on or after January 1, 2016.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 2, S. L. 09-
548 .)
G. S. 105- 129.17( a) – Tax Election: This section was rewritten to allow the credit for
renewable energy property to be claimed against the franchise tax levied in Article 3,
the income taxes levied in Article 4, or the gross premiums tax levied in Article 8B. All
other credits allowed under Article 3B are limited to the franchise tax levied under Article
3 or the income taxes levied under Article 4.
( Effective for taxable years beginning on or after January 1, 2009; HB 512, s. 3, S. L. 09-
548 .)
TAX CREDITS FOR GROWING BUSINESSES
G. S. 105- 129.27( f) – No Double Credit: This subsection was rewritten to clarify that a
recycling facility that qualifies for a credit under Article 3C is prohibited from claiming
any tax credits under Articles 3A or 3J. Reference to Article 3J was missing from the
original statute.
( Effective for taxable years beginning on or after January 1, 2007; SB 509, s. 3.( a), S. L.
09- 445.)
G. S. 105- 129.83( m) – No Double Benefit: This subsection was enacted to prohibit a
corporation that qualifies for the new special apportionment formula for qualified capital
intensive corporations in G. S. 105- 130.4( s1) from also claiming any tax credits under
Article 3J with respect to the facility that caused the corporation to be a qualified capital
intensive corporation.
( Effective for taxable years beginning on or after January 1, 2010; SB 575, s. 3, S. L. 09-
54.)
TIER DESIGNATION
G. S. 143B- 437.08( i) – Development Tier Designation: This section was amended by
adding a new subsection to designate all industrial seafood parks created under Article
23C of Chapter 113 as development tier one.
( Effective August 26, 2009 and expires July 1, 2012; HB 1500, s. 1, S. L. 09- 505.)
14
CORPORATION INCOME TAX
G. S. 105- 130.3B – Income Tax Surtax: This new section imposes a 3% surtax on tax
payable by a corporation. The surtax is in addition to the income tax levied under G. S.
105- 130.3 and is computed on tax before any available tax credits. No addition to tax
may be made pursuant to G. S. 105- 163.41 to the extent the underpayment of estimated
tax is due to the addition of the surtax.
( Effective for taxable years beginning on or after January 1, 2009 and expires for
taxable years beginning on or after January 1, 2011; SB 202, s. 27A. a. 1( a), S. L. 09-
451.)
G. S. 105- 130.4( h) – Conforming Change: This subdivision was rewritten to replace
the term “ nonbusiness” with the term “ nonapportionable” when referring to a
“ nonbusiness activity.” This conforms to the changes made by the 2002 General
Assembly.
( Effective August 7, 2009; SB 509, s. 4, S. L. 09- 445.)
G. S. 105- 130.4( i) – Conforming Change: This subsection was rewritten to conform
with the new special apportionment provision for qualified capital intensive corporations
in G. S. 105- 130.4( s1).
( Effective for taxable years beginning on or after January 1, 2010; SB 575, s. 2, S. L. 09-
54.)
G. S. 105- 130.4( s1) – Special Apportionment Formula for a Qualified Capital
Intensive Corporation: This subsection was enacted to encourage the location and
expansion of capital intensive companies in North Carolina by providing for
apportionment of corporate income based solely on the sales factor for companies that
meet certain investment and quality jobs criteria. A qualified capital intensive
corporation is a corporation that meets all six of the following conditions:
the corporation’s property factor exceeds 75% of the sum of its property, payroll, and
sales factors, with the sales factor added twice, for the current year or the corporation’s
average property factor for the preceding three years exceeds 75% of the average sum
of the factors for those years;
the Secretary of Commerce makes a written determination that the corporation has
invested or is expected to invest at least one billion dollars in private funds to construct
a facility in this State within nine years after the time the construction begins. The costs
of acquiring and improving land for the facility, costs for renovations or repairs for
existing buildings, and costs of equipping or reequipping the facility are all included as
costs of construction;
the corporation maintains the average number of employees it has at the facility during
the first two years after the facility is placed in service for the remainder of the time in
which the corporation must complete the investment;
15
the facility is located in a county that was designated as a development tier one or two
area at the time construction began;
the corporation satisfies the wage standard prescribed under G. S. 105- 129.83( c) at the
facility;
the corporation provides health insurance as prescribed in G. S. 105- 129.83( d) for all its
full- time employees at the facility.
If the corporation fails to invest one billion dollars in private funds within nine years, the
benefit of the special apportionment formula expires and the corporation must apportion
income as otherwise required under G. S. 105- 130.4.
( Effective for taxable years beginning on or after January 1, 2010; SB 575, s. 1, S. L. 09-
54. If no corporation has qualified as a qualified capital intensive corporation prior to
January 1, 2019, then G. S. 105- 130.4( s1) is repealed effective for taxable years
beginning on after January 1, 2019; SB 575, s. 6, S. L. 09- 54.)
G. S. 105- 130.4( t1) – Technical Change: This section was rewritten to reinstate
language that was omitted from the statute when the tax appeal process was reformed
by S. L. 2007- 491 ( SB 242). The reinstated language prohibits a corporation from using
an alternative apportionment method unless granted permission to do so in writing from
the Secretary. Any return filed using an apportionment method other than the statutorily
prescribed method that is not authorized by the Secretary is not a lawful return.
( Effective August 7, 2009; SB 509, s. 5, S. L. 09- 445.)
G. S. 105- 130.5( a)( 15a) – Bonus Depreciation Add- Back: The 2008 General
Assembly added this subdivision to require a taxpayer to add to federal taxable income
a percentage of the 50% first- year bonus depreciation deduction allowed for federal
income tax purposes under § 168( k) of the Internal Revenue Code under the Economic
Stimulus Act of 2008. The applicable percentage is 85% of the bonus depreciation for
the tax year 2008. Any taxpayer who claimed the bonus depreciation for federal
purposes for the tax year 2007 and whose North Carolina return also reflected that
deduction must also add back 85% of the deduction claimed for the tax year 2007 on
the 2008 tax return.
The subdivision was amended during the 2009 Session of the General Assembly to
extend the provision to include property placed in service before January 1, 2010.
Additionally, a taxpayer must add to federal taxable income 85% of the 50% additional
depreciation permitted pursuant to IRC § 168( n) under the Emergency Economic
Stabilization Act of 2008. The provision also applies to property placed in service after
December 31, 2007, but before January 1, 2010. Any taxpayer who claimed a § 168( n)
deduction for federal purposes on a 2008 return and whose North Carolina return also
reflected that deduction must add back 85% of the deduction claimed for the tax year
2008 on the 2009 return.
16
The adjustments do not result in a difference in basis of the affected assets for State
and federal income tax purposes.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( c),
S. L. 09- 451.)
G. S. 105- 130.5( a)( 21) – Deferred Cancellation of Indebtedness Add- Back: This new
subdivision requires a taxpayer to add to federal taxable income the amount of income
deferred under IRC § 108( i)( 1) pursuant to the American Recovery and Reinvestment
Act of 2009. The federal act permits the taxpayer to recognize cancellation of
indebtedness income over a five year period beginning in 2014. By decoupling from the
federal provision, the State requires the taxpayer to recognize the indebtedness income
in the current year, and provides for the deduction from federal taxable income of the
deferred amount beginning in 2014 ( see G. S. 105- 130.5( b)( 25)).
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( c),
S. L. 09- 451.)
G. S. 105- 130.5( a)( 22) – Original Issue Discount on Applicable High Yield Discount
Obligation: This new subdivision requires a taxpayer to add to federal taxable income
the amount deducted pursuant to IRC § 163( c)( 5)( F). As part of The American Recovery
and Reinvestment Act of 2009, rules limiting corporate deductions of original issue
discount on high- yield discount obligations were suspended, creating deductions for the
issuer. The General Assembly chose to decouple from this federal provision.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( c),
S. L. 09- 451.)
G. S. 105- 130.5( b)( 21a) - Future Deduction for 50% First- Year Accelerated
Depreciation Add- Back: This subdivision was amended to provide a deduction from
future income tax returns for the 50% additional first- year depreciation deduction
required to be added to federal taxable income under G. S. 105- 130.5( a)( 15a). A
taxpayer may deduct 20% of the total amount of accelerated depreciation added to
federal taxable income in the tax year 2008 in each of the first five taxable years
beginning on or after January 1, 2009. For a taxpayer who made the addition for
accelerated depreciation in 2009, the deduction applies to the first five taxable years
beginning on or after January 1, 2010.
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( d),
S. L. 09- 451.)
G. S. 105- 130.5( b)( 25) – Deduction for Deferred Cancellation of Indebtedness: This
new subdivision provides a deduction from federal taxable income for deferred
cancellation of indebtedness income subsequently included in federal taxable income
under IRC § 108( i)( 1) pursuant to the American Recovery and Reinvestment Act of
2009. The deduction applies to taxable years beginning on or after January 1, 2014.
17
( Effective for taxable years beginning on or after January 1, 2009; SB 202, s. 27A. 6.( d),
S. L. 09- 451.)
G. S. 105- 130.16( a) – Conforming and Technical Changes: This section was
amended by the 2008 General Assembly to conform the corporate officers authorized to
sign a corporate income tax return with those authorized by statute to sign a franchise
tax return. Under prior law, the president, vice- president, treasurer, assistant treasurer,
secretary, or assistant secretary was authorized to sign the return. As amended, the
assistant treasurer, secretary, or assistant secretary are deleted and replaced by the
chief financial officer. The 2009 General Assembly corrected an error in the effective
date of the 2008 legislation.
( Effective for taxable years beginning on or after January 1, 2009; SB 1704, s. 4.( a),
S. L. 08- 134. Correction: Effective for taxable years beginning on or after January 1,
2008; SB 509, s. 6, S. L. 2009- 445.)
G. S. 105- 130.18 – Failure to File Returns: This statute is repealed because it is an
unnecessary statute in the corporate income tax laws. The Department of Revenue
does not ask taxpayers to file a ' supplemental' return. A taxpayer files either an original
return or an amended return. If the Department determines additional tax is due, it
proposes an assessment.
( Effective August 7, 2009; SB 509, s. 7, S. L. 09- 445.)
G. S. 105- 130.34( a) – Clarifying Change: This section was amended to clarify that the
cap for donations of real property for conservation purposes is limited to $ 500,000
regardless of the number of qualifying donations made during the taxable year.
( Effective August 7, 2009; SB 509, s. 9.( c), S. L. 09- 445.)
G. S. 105- 130.47( b1) – Alternative Credit for Qualifying Expenses of a Production
Company: This new subsection was added to provide an election in computing the
amount of credit for qualifying expenses. In lieu of the existing 15% credit, the taxpayer
may choose to compute the credit at 25%. However, it must forfeit the benefit of the
special sales tax rate imposed on mill machinery under G. S. 105- 187.51 by subtracting
from the amount of credit computed at 25% the difference between the amount of tax
paid on purchases subject to the mill machinery rate of 1% and the amount of sales or
use tax that would have been due had the purchases been subject to the combined
sales tax rate. The credit is based on all expenses incurred for the production, not just
those incurred during the taxable year. The election is binding.
( Effective for taxable years beginning on or after January 1, 2010; SB 943, s. 1, S. L. 09-
529.)
18
G. S. 105- 130.47( h) – Technical Change: This subsection was rewritten to replace the
term “ claimed” with the term “ taken” with regard to the report the Department is required
to publish by May 1 of each year concerning the production company credit.
( Effective August 7, 2009; SB 509, s. 8.( a), S. L. 09- 445.)
INSURANCE GROSS PREMIUMS TAX
G. S. 58- 6- 25 – Insurance Regulatory Charge: The percentage rate to be used in
calculating the insurance regulatory charge under this statute is 5.5% for the 2009
calendar year and 6% for the 2010 calendar year. This charge is a percentage of gross
premiums tax liability.
( Effective August 7, 2009; SB 202, ss. 21.1.( a) - 21.1.( b), S. L. 09- 451.)
G. S. 105- 228.5B – Transfer of Proceeds to High Risk Pool: This section was
rewritten to extend the date by which the Treasurer must transfer a designated amount
of gross premiums tax to the North Carolina Health Insurance Risk Pool Fund to
November 1 of each year. The change was necessary to insure that sufficient funds
had been collected in order to make the transfer.
( Effective August 7, 2009; SB 509, s. 10, S. L. 09- 445.)
GENERAL ADMINISTRATION
G. S. 105- 228.90( b)( b1) – Reference to the Internal Revenue Code Updated: This
subdivision was amended in two steps. The first amendment updated the reference to
the Internal Revenue Code from May 1, 2008 to May 1, 2009, but not including the
amendments made to section 63( c) of the Code by section 3012 of P. L. 110- 289. Any
amendments to the Internal Revenue Code enacted after May 1, 2008 that increase
North Carolina taxable income for the 2008 taxable year become effective for taxable
years beginning on or after January 1, 2009. This amendment conforms North Carolina
tax law to the provisions of the federal Farm/ Military Tax Relief Acts of 2008, P. L. 110-
234, enacted on May 22, 2008; the Housing Assistance Tax Act of 2008, P. L. 110- 289,
enacted on July 30, 2008; the Emergency Economic Stabilization Act of 2008, P. L. 110-
343, enacted on October 3, 2008; and the American Recovery & Reinvestment Act of
2009, P. L. 111- 5, enacted on February 17, 2009, with the exception of the federal
provision that allows a taxpayer who claims the standard deduction an additional
deduction from gross income for state and local real property taxes. The first
amendment is effective for taxable years beginning on or after January 1, 2008.
Note: This implies that, with the exception of the real property tax deduction for
standard deduction filers, North Carolina has conformed to all of the tax provisions of
19
the four federal Acts. However, separate provisions in G. S. 105- 134.6( c) and G. S. 105-
130.5( a) result in the State effectively not conforming to the federal deduction for motor
vehicle sales taxes; deferred income excluded under Code section 108( i)( 1); and
expenses resulting from applicable high yield debt obligations. In addition, North
Carolina partially decouples from the extension of the IRC § 168( k) additional bonus
depreciation and the adoption of the IRC § 168( n) additional bonus depreciation
deduction for disaster related property. A taxpayer is required to make an addition to
federal taxable income equal to 85% of the deduction claimed on the federal return but
subsequently deducts the amount added back ratably over a five- year period.
The second amendment did not change the date reference, but did delete the language
regarding the exception for the real property tax deduction. This implies that North
Carolina has conformed to the federal provision that allows a taxpayer an additional
standard deduction for real property taxes paid. However, a second provision in G. S.
105- 134.6( c) results in the State effectively not conforming to the federal additional
standard deduction for real property taxes. The second amendment is effective for
taxable years beginning on or after January 1, 2009.
Note: The two- step change regarding the real property tax deduction was necessary
to permit the State to not follow the real property tax deduction provision without
retroactively increasing a taxpayer’s income tax liability. The real property tax deduction
was effective for taxable year 2008. If the General Assembly had adopted the federal
changes and then required an addition to federal taxable income for 2008, the
taxpayer’s tax liability would have been retroactively increased because the law change
was not enacted until 2009.
( First amendment effective for taxable years beginning on or after January 1, 2008; SB
202, s 27A. 6.( a); S. L. 09- 451; second amendment effective for taxable years beginning
on or after January 1, 2009; SB 202, s 27A. 6.( b), S. L. 09- 451.)
G. S. 105- 259( b) – Disclosure of Selection Standards: This subsection was rewritten
to clarify that standards used for the selection of returns for examination and data used
for determining the standards may not be disclosed for any purpose.
( Effective August 7, 2009; SB 509, s. 39, S. L. 09- 445.)
G. S. 105- 259( b)( 20) – Disclosure to the Environmental Management Commission:
This subdivision was amended to clarify that the subdivision is repealed when Part 6 of
Article 21A of Chapter 143 of the General Statutes expires.
( Effective August 26, 2009; SB 700, s. 10, S. L. 09- 483.)
G. S. 105- 259( b)( 39) – Disclosure to State Treasurer: This new subdivision permits
the Department to provide to the State Treasurer information it requests about whether
a unit of local government has timely filed a withholding report, has been charged a
20
penalty, or has paid a penalty for purposes of determining compliance with the Local
Government Finance Act.
( Effective July 10, 2009; SB 691, s. 1, S. L. 09- 283.)
21
SALES AND USE TAX DIVISION
SALES AND USE TAX
G. S. 105- 164.3 – Definitions: The 2009 General Assembly added and revised multiple
definitions. The changes and their effective dates are as follows:
Bundled transaction – ( 1b). This definition is recodified as ( 1i).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Business – ( 1d). This definition is recodified as ( 1k) and is amended to modernize the
language. There is no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Audio work – ( 1e). The term is defined as “ a series of musical, spoken, or other
sounds, including a ringtone.” This definition is added as a result of the imposition of
tax on certain digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Audiovisual work – ( 1g). The term is defined as “ a series of related images and any
sounds accompanying the images that impart an impression of motion when shown in
succession.” This definition is added as a result of the imposition of tax on certain
digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Cable service – ( 1f). This definition is recodified as ( 1m).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
SECTION 3
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Consumer – ( 5). This definition is amended to modernize language and to add digital
property and a service as items a person may store, use, or otherwise consume.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Custom computer software – ( 5c). This definition is recodified as ( 5b).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Delivered electronically – ( 5d). This definition is repealed.
( Effective January 1, 2010; SB 202, s. 27A. 3.( d), S. L. 09- 451.)
Datacenter – ( 5c). This definition is added as a result of the rewritten exemption under
G. S. 105- 164.13( 43a). The term is defined as “ a facility that provides infrastructure for
hosting or data processing services and that has power and cooling systems that are
created and maintained to be concurrently maintainable and to include redundant
capacity components and multiple distribution paths serving the computer equipment at
the facility. Although the facility must have multiple distribution paths serving the
computer equipment, a single distribution path may serve the computer equipment at
any one time. The following definitions apply in this subdivision: ( a) Concurrently
maintainable – Capable of having any capacity component or distribution element
serviced or repaired on a planned basis without interrupting or impeding the
performance of the computer equipment ( b) Multiple distribution paths – A series of
distribution paths configured to ensure that failure on one distribution path does not
interrupt or impede other distribution paths ( c) Redundant capacity components –
Components beyond those required to support the computer equipment.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Digital code – ( 7a). The term is defined as “ a code that gives a purchaser of the code
a right to receive an item by electronic delivery or electronic access. A digital code may
be obtained by an electronic means or by a tangible means. A digital code does not
include a gift certificate or a gift card.” This definition is added as a result of the
imposition of tax on certain digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Direct mail – ( 7a). This definition is recodified as ( 7c).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Eligible internet datacenter – ( 8e). This definition is amended to correct grammatical
issues. There is no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
23
Engaged in business – ( 9). This definition is amended to clarify that the term applies
to services and digital property. In addition, “ mail order” is replaced with “ remote sale.”
The definition also is reorganized for ease of reading.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Gross sales – ( 12). This definition is amended to add digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
In this ( the) State – ( 14). This definition is amended to modernize language. There is
no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Information service – ( 14a). The term is defined as “ a service that generates,
acquires, stores, processes, or retrieves data and information and delivers it
electronically to or allows electronic access by a consumer whose primary purpose for
using the service is to obtain the processed data or information.” This definition is
added as a result of the imposition of tax on certain digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Load and leave – ( 17a). This definition is repealed.
( Effective January 1, 2010; SB 202, s. 27A. 3.( d), S. L. 09- 451.)
Mail order sale – ( 18). This definition is repealed.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Net taxable sales – ( 24). This definition is amended to modernize language. There is
no substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Nonresident retail or wholesale merchant – ( 25). This definition is amended to
clarify that the term also applies to services and digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Person – ( 26). This definition is amended to modernize language. There is no
substantive change.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
24
Purchase – ( 32). This definition is amended to clarify that the term also applies to
services and digital property. In addition, language is modernized.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Remote sale – ( 33c). The term “ Remote sale” is defined as “ a sale of tangible personal
property or digital property ordered by mail, by telephone, via the Internet, or by another
similar method, to a purchaser who is in this State at the time the order is remitted, from
a retailer who receives the order in another state and delivers the property or causes it
to be delivered to a person in this State. It is presumed that a resident of this State who
remits an order was in this State at the time the order was remitted.” This definition is
added to replace the definition of “ Mail order sale” that is repealed.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Retailer – ( 35). This definition is amended to clarify the term also applies to services
and digital property. In addition, “ mail order” is replaced with “ remote sale.” The
definition is reorganized grammatically for ease of reading and modernizing of
language.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Ringtone – ( 35c). The term is defined as “ a digitized sound file that is downloaded
onto a device and that may be used to alert the user of the device with respect to a
communication.” This definition is added as a result of the imposition of tax on certain
digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Sale or selling – ( 36). This definition is amended to clarify that the term also applies to
services and digital property. The definition is reorganized for ease of reading and
modernizing of language. “ Lease or rental” was added to this definition and a group of
sentences relating to the giving away of taxable items is deleted from the definition.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Sales price – ( 37). This definition is amended to clarify the term also applies to digital
property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Storage – ( 44). This definition is amended to clarify the term also applies to digital
property purchased from a retailer. The definition was further rewritten to clarify
transactions that are not included in the definition of storage.
25
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Storage and use; Exclusion – ( 45). This definition is repealed, but incorporated into
the G. S. 105- 164.3( 44) exemption.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Streamlined Agreement – ( 45a). The definition is amended to reflect the latest
version of the Streamlined Sales and Use Tax Agreement of May 12, 2009.
( Effective August 7, 2009; SB 509, s. 11, S. L. 09- 445.)
Telecommunications service – ( 48). This definition is amended to replace language
in ( a.) with “ an information service” which is now defined in G. S. 105- 164.3( 14a) and to
replace language in ( h.) with “ Digital property that is delivered or accessed
electronically, including an audio work, an audiovisual work, or any other item subject to
tax under G. S. 105- 164.4( a)( 6b)” with an effective date of January 1, 2010.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Use – ( 49). This definition is amended to clarify the term also applies to digital property.
In addition, language is added to clarify the definition does not include a purchaser’s
use of tangible personal property or digital property in any circumstances that would
exclude the storage of property under G. S 105.164.3( 44).
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Wholesale merchant – ( 51). This definition is amended to clarify the term also applies
to services and digital property. The definition is reorganized for ease of reading and
modernizing of language.
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
Wholesale sale – ( 52). This definition is amended to clarify the term also applies to
services and digital property. The definition adds the following: “ The term includes a
sale of digital property for reproduction into digital or tangible personal property offered
for sale. The term does not include a sale to a user or consumer not for resale or, in the
case of digital property, not for reproduction and sale of the reproduced property.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( g), S. L. 09- 451.)
G. S. 105- 164.4( a) – Increase in State Sales Tax Rate: The State general rate of tax
increases from 4.5% to 5.5% for sales made on or after September 1, 2009 and before
October 1, 2009. A retailer is not liable for an overcollection or undercollection of sales
tax if the retailer has made a good faith effort to comply with the law and collect the
26
proper amount of tax. This “ good faith” clause applies only to the period beginning
September 1, 2009, and ending October 1, 2009.
As a result of the one percent ( 1%) State rate increase, the combined general rate as
defined in G. S. 105- 164.3( 4a) that applies only to sales of telecommunications service,
ancillary service, video programming ( including cable and direct- to- home satellite
service), and spirituous liquor increases from 7% to 8%.
( Effective August 7, 2009; SB 202, s. 27A. 2.( a), S. L. 09- 451. Effective July 1, 2009 for
the period beginning September 1, 2009 and ending October 1, 2009; HB 836, s. 22,
S. L. 09- 575. )
G. S. 105- 164.4( a) – Increase in State Sales Tax Rate: The State general rate of tax
increases from 5.5% to 5.75%. This occurs simultaneously with the repeal of the local
sales tax under Article 44 as a result of the State’s assumption of Medicaid
responsibilities for the counties.
( Effective October 1, 2009 for sales occurring on or after that date the State general rate
is 4.75%; HB 1473, s. 31.16.4( g), S. L. 07- 323. Effective October 1, 2009 for sales
occurring on or after that date the State general rate is 5.75%; SB 202, s. 27A. 2.( b),
S. L. 09- 451. Effective July 1, 2011 for sales occurring on or after that date the State
general rate is 4.75%; SB 202, s. 27A. 2.( b), S. L. 09- 451. )
G. S. 105- 164.4( a)( 6b) – Tax on Digital Property: This new subdivision imposes the
State general and applicable local rate of tax on digital property that is listed below, is
delivered or accessed electronically, is not considered tangible personal property, and
would be taxable under Article 5 if sold in a tangible medium. The tax applies
regardless of whether the purchaser of the item has the right to use it permanently or to
use it without making continued payments. The tax does not apply to a service that is
taxed under G. S. 105- 164.4( a) or to an information service. The following property is
subject to tax under this subdivision: ( a) an audio work, ( b) an audiovisual work, ( c) a
book, a magazine, a newsletter, a report, or another publication, ( d) a photograph or a
greeting card.
( Effective January 1, 2010; SB 202, s. 27A. 3.( e), S. L. 09- 451.)
G. S. 105- 164.4( a)( 1j) – Tax on Electricity Sold to Manufacturers and Farmers: This
new subdivision imposes a State sales tax at the rate of 1.8% on sales of electricity to
manufacturing industries and manufacturing plants for use in connection with the
operation of the industries and plants and to farmers to be used by them for any farming
purposes other than preparing food, heating dwellings, and other household purposes.
The electricity must be measured by a separate meter or another separate device.
( Effective October 1, 2007 for sales occurring on or after that date; SB 3, s. 10( c), S. L.
07- 397. The rate is reduced from 1.8% to 1.4%; effective July 1, 2008 for sales
occurring on or after that date; SB 3, s. 10( d), S. L. 07- 397. The rate is further reduced
27
from 1.4% to 0.8%; effective July 1, 2009 for sales occurring on or after that date; SB 3,
s. 10( e), S. L. 07- 397. The subdivision is repealed and sales of electricity to
manufacturers and farmers are exempt from tax; effective July 1, 2010 for sales
occurring on or after that date; SB 3, s. 10( f), S. L. 07- 397.)
G. S. 105- 164.4B( d) – Sourcing Principles: This subsection is rewritten to bring North
Carolina in compliance with the Streamlined Agreement as defined in G. S. 105-
164.3( 45a). Direct mail is sourced to the location where the property is delivered that
meets one of the following descriptions: ( a) Direct mail purchased pursuant to a direct
pay permit. ( b) When the purchaser provides the seller with information to show the
jurisdictions to which the direct mail is to be delivered. Direct mail that does not meet
either of the above descriptions is sourced to the location from which the direct mail was
shipped. Florist wire sales are sourced to the business location of the florist that takes
the order for the sale. A “ florist wire sale” is a sale in which a retail florist takes a
customer’s order and transmits the order to another retail florist to be filled and
delivered.
( Effective August 7, 2009; SB 509, s. 12, S. L. 09- 445.)
G. S. 105- 164.6 – Complementary Use Tax: This subdivision is amended to conform
to other law changes under G. S. 105- 164.4( a). In subsections ( a) and ( b), the words “ or
digital property” are added after the words “ tangible personal property.” In subsection
( f) the words “ digital property, or a service” are added after the words “ tangible personal
property.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( h), S. L. 09- 451.)
G. S. 105- 164.6A( a) – Voluntary Collection Agreements: This subdivision is
amended to conform to other law changes under G. S. 105- 164.4( a). The words “ digital
property, or services” are added after the words “ tangible personal property.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( i), S. L. 09- 451.)
G. S. 105- 164.7 – Retailer to Collect Sales Tax from Purchaser as Trustee for State:
This section is rewritten by changing the title of the section and striking all the language
in the section. The rewritten language is as follows: “ The sales tax imposed by this
Article is intended to be passed on to the purchaser of a taxable item and borne by the
purchaser instead of by the retailer. A retailer must collect the tax due on an item when
the item is sold at retail. The tax is a debt from the purchaser to the retailer until paid
and is recoverable at law by the retailer in the same manner as other debts. A retailer is
considered to act as a trustee on behalf of the State when it collects tax from the
purchaser of a taxable item."
( Effective August 7, 2009; SB 202, s. 27A. 3.( j), S. L. 09- 451.)
28
G. S. 105- 164.8 – Retailer’s Obligation to Collect Tax; Remote Sales Subject to
Tax: G. S. 105- 164.8( b) provides that a retailer who makes a mail order sale is engaged
in business in this State and is subject to the sales and use tax if at least one of the
conditions in ( b)( 1) through ( b)( 8) are met. G. S. 105- 164.8( b)( 3) codifies the principle
announced by the United States Supreme Court in Scripto v. Carson that a state may
require tax collection by a remote retailer that had contacts with 10 independent
contractors in the state who solicited orders for products on its behalf. G. S. 105-
164.8( b)( 3) requires a retailer who makes a mail order sale to collect the sales tax if:
“ The retailer has representatives in this State who solicit business or transact business
on behalf of the retailer, whether the mail order sales thus subject to taxation by this
State result from or are related in any way to such solicitation or transaction of
business.”
The clarifying amendments to G. S. 105- 164.8( b) modernize the terminology of the
statute by replacing “ mail order sales” with “ remote sales.” The clarification rewrites
G. S. 105- 164.8( b)( 3) as follows: “ The retailer solicits or transacts business in this State
by employees, independent contractors, agents, or other representatives, whether the
remote sales thus subject to taxation by this State result from or are related in any other
way to the solicitation or transaction of business.” The clarification also adds the
following bright line presumption: “ A retailer is presumed to be soliciting or transacting
business by an independent contractor, agent, or other representative if the retailer
enters into an agreement with a resident of this State under which the resident, for a
commission or other consideration, directly or indirectly refers potential customers,
whether by a link on an Internet Web site or otherwise, to the retailer. This presumption
applies only if the cumulative gross receipts from sales by the retailer to purchasers in
this State who are referred to the retailer by all residents with this type of agreement
with the retailer is in excess of ten thousand dollars ($ 10,000) during the preceding four
quarterly periods. This presumption may be rebutted by proof that the resident with
whom the retailer has an agreement did not engage in any solicitation in the State on
behalf of the seller that would satisfy the nexus requirement of the United States
Constitution during the four quarterly periods in question.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( a), S. L. 09- 451.)
G. S. 105- 164.11( e) – Reliance on Written Advice: This is a new subsection which
allows a seller who requests specific written advice from the Secretary of Revenue and
who acts in accordance with the written advice to not be held liable to a purchaser for
any overcollected sales or use tax that was collected in accordance with the written
advice. Subsection ( a) of G. S. 105- 164.11 governs when a seller may obtain a refund
for overcollected tax.
( Effective August 5, 2009; SB 909, s. 1, S. L. 09- 413.)
G. S. 105- 164.13 – Exemptions and Exclusions: The 2009 General Assembly added
and amended exemptions. Also included are exemptions enacted by the 2007 General
29
Assembly with future effective dates. The changes and their effective dates are as
follows:
G. S. 105- 164.13 – Retail sales and use tax. The introductory language in this section
is rewritten to add “ digital property” after the words “ tangible personal property” when a
sale at retail or the use, storage, or consumption in this State is specifically exempt from
tax. This rewrite is to conform with other law changes under G. S. 105- 164.4( a).
( Effective August 7, 2009; SB 202, s. 27A. 3.( k), S. L. 09- 451.)
Fuel sold to farmers – ( 1). This exemption for sales of specific items to a farmer for
use by the farmer in the planting, cultivating, harvesting, or curing of farm crops or in the
production of dairy products, eggs, or animals was rewritten to remove the reference to
“ electricity” in the phrase “ fuel other than electricity.” The sales tax on electricity will be
phased out.
( Effective July 1, 2010 for sales occurring on or after that date; SB 3, s. 10( g), S. L. 07-
397.)
Electricity sold to farmers – ( 1b). This is a new exemption for electricity sold to a
farmer to be used for any farming purpose other than preparing food, heating dwellings,
and other household purposes.
( Effective July 1, 2010 for sales occurring on or after that date; SB 3, s. 10( h), S. L. 07-
397.)
Sales to a telephone company – ( 5b). This exemption is amended to modernize
language. The word “ telephone” was changed to “ telecommunications”. There is no
change in the application of the exemption.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of magazines – ( 28). This exemption is rewritten to delete sales of magazines
by magazine vendors making door to door sales.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of computer software – ( 43a). This exemption is rewritten to delete computer
software delivered electronically or by load and leave. However, computer software
meeting any one of the following descriptions will be exempt: ( a) It is designed to run on
an enterprise server operating system. ( b) It is sold to a person who operates a
datacenter and is used within the datacenter. ( c) It is sold to a person who provides
cable service, telecommunications service, or video programming and is used to
30
provide ancillary service, cable service, Internet access service, telecommunications
service, or video programming.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of computer software or digital property that becomes a component part –
( 43b). This is a new exemption for computer software or digital property that becomes
a component part of other computer software or digital property that is offered for sale
or of a service that is offered for sale.
( Effective January 1, 2010 for sales occurring on or after that date; SB 202, s. 27A. 3.( f),
S. L. 09- 451.)
Sales of aircraft lubricants, repair parts, and accessories – ( 45). This exemption is
amended to only include aircraft lubricants, aircraft repair parts, and aircraft accessories
sold to an interstate passenger air carrier for use at its hub. Aircraft simulators for flight
crew training sold to an interstate passenger air carrier for use at its hub is deleted from
this exemption.
( Effective October 1, 2009 for sales occurring on or after that date; SB1057, s. 1, S. L.
09- 511.)
Sales of aircraft simulators – ( 45c). This is a new exemption for aircraft simulators
sold to a company for flight crew training and maintenance training.
( Effective October 1, 2009 for sales occurring on or after that date; SB1057, s. 1, S. L.
09- 511.)
Fuel and electricity sold to manufacturers – ( 57). This is a new exemption for fuel
and electricity sold to a manufacturer for use in connection with the operation of a
manufacturing facility.
( Effective July 1, 2010 for sales occurring on or after that date; SB 3, s. 10( h), S. L. 07-
397.)
G. S. 105- 164.13B( a) – State Sales Tax Exemption for Certain Bakery Items: This is
a new exemption from the State sales and use tax for bakery items sold without eating
utensils by an artisan bakery. These items are subject to the 2% local sales and use
tax applicable to sales of qualifying food. Subdivision ( 4), which provides that “ prepared
food” is subject to the State and applicable local rates of tax, was amended to provide
that prepared food other than bakery items sold without eating utensils by an artisan
bakery is subject to the State and local rates of tax. For purposes of the exemption, the
term “ bakery item” includes bread, rolls, buns, biscuits, bagels, croissants, pastries,
donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, and tortillas. An
“ artisan bakery” is defined as “… a bakery that meets all of the following requirements:
31
( a) It derives over eighty percent ( 80%) of its gross receipts from bakery items. ( b) Its
annual gross receipts, combined with the gross receipts of all related persons as
defined in G. S. 105- 163.010, do not exceed one million eight hundred thousand dollars
($ 1,800,000).”
( Effective January 1, 2009 for sales made on or after that date; HB 2436, s. 28.19( a),
S. L. 08- 107.)
G. S. 105- 164.14( b) – Nonprofit Entities and Hospital Drugs: This subdivision is
rewritten to create a more succinct reading of the refund provision.
( Effective August 7, 2009; SB 509, s. 13, S. L. 09- 445.)
G. S. 105- 164.14( b)( 1) – Nonprofit Entities and Hospital Drugs: This subdivision is
amended to allow a public hospital described in Article 2 of Chapter 131E to receive a
semiannual refund of sales and use tax as described in G. S. 105- 164.14( b).
( Effective August 28, 2009; HB 274, s. 4.1, S. L. 09- 550.)
G. S. 105- 164.14( b)( 2a) – Nonprofit Entities and Hospital Drugs: This new
subdivision allows a volunteer fire department and a volunteer emergency medical
services squad to receive a semiannual refund of sales and use taxes paid by it under
Article 5 on direct purchases of tangible personal property and services, other than
electricity, telecommunications service, and ancillary service, for use in carrying on the
work of the above entities if they are exempt from income tax under the Code. Effective
July 1, 2008, some of these entities did not qualify for refunds since they were not
exempt from income tax under section 501( c)( 3) of the Internal Revenue Code. As a
result of this new subdivision, these entities now qualify for refunds on purchases made
on or after July 1, 2008.
( Effective July 1, 2008 and applies to purchases made on or after that date; HB 511, s.
1, S. L. 09- 233.)
G. S. 105- 164.14( c)( 23) – Certain Governmental Entities: This new subdivision is
added to allow a special district created under Article 43 to apply for an annual refund of
sales and use taxes paid by it under Article 5 on direct purchases of tangible personal
property and services, other than electricity, telecommunications service, and ancillary
service. This special district is a regional public transportation authority created in
accordance with Article 43.
( Effective August 27, 2009; HB 148, s. 2.( d), S. L. 09- 527.)
G. S. 105- 164.14( j)( 2) n. – Certain Industrial Facilities: A technical amendment is
made to replace the phrase “ Solar energy generating materials manufacturing” with
“ Solar electricity generating materials manufacturing.”
32
( Effective July 1, 2008 and applies to purchases made on or after that date; SB 509, s.
14.( a), S. L. 09- 445.)
G. S. 105- 164.15A( a) – Effective Date of Tax Changes on Services and Items Taxed
at Combined General Rate: This subsection is amended to consolidate subdivisions
( 1) and ( 2) into a. and b. of subdivision ( 1). Subdivision ( 2) is rewritten to add the
following: “ For a service that is not billed on a monthly or other periodic basis, a tax
change applies to amounts received for services provided on or after the effective date,
except amounts received for services provided under a lump- sum or unit- price contract
entered into or awarded before the effective date or entered into or awarded pursuant to
a bid made before the effective date.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( l), S. L. 09- 451.)
G. S. 105- 164.16 – Returns and Payment of Taxes: This is amended to clarify that the
subsection also applies to services and digital property.
( Effective August 7, 2009; SB 202, s. 27A. 3.( m), S. L. 09- 451.)
G. S. 105- 164.16( d) – Use Tax on Out of State Purchases: The subsection that is
effective for taxable years beginning on or after January 1, 2010 is repealed. The effect
is that use tax due by individuals will continue to be reported on the North Carolina
Individual Income Tax Return.
( Effective August 7, 2009; SB 202, s. 27A. 3.( b), S. L. 09- 451.)
G. S. 105- 164.16( e) – Simultaneous State and Local Changes: This subsection was
added to clarify the reporting of sales and use tax on lease or rental payments and
installment sale payments when the State and local rates change on the same date but
the “ combined general rate” does not change. When the State and local sales and use
tax rates change on the same date because one increases and the other decreases, but
the “ combined general rate” as defined in G. S. 105- 164.3( 4a) does not change, taxes
payable on the gross receipts from the following periodic payments are to be reported in
accordance with the changed State and local rates: ( 1) Lease or rental payments billed
after the effective date of the changes. ( 2) Installment sale payments received after the
effective date of the changes by a taxpayer who reports the installment sale on a cash
basis. This subsection is further amended to delete some language; however, no
substantive change.
( Effective July 28, 2008; SB 1704, s. 11, S. L. 08- 134. Effective August 7, 2009; SB
202. s. 27A. 3( m), S. L. 09- 451.)
G. S. 105- 164.22 – Record- Keeping Requirements, Inspection Authority, and Effect
of Failure to Keep Records: This section is renamed and rewritten to incorporate the
language from G. S. 105- 164.22, G. S. 105- 164.23, G. S. 105- 164.24, G. S. 105- 164.25,
and G. S. 105- 164.31.
33
( Effective August 7, 2009; SB 202, s. 27A. 3.( n), S. L. 09- 451.)
G. S. 105- 164.23 – Consumer Must Keep Records: This section is repealed;
however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.24 – Separate Accounting Required: This section is repealed;
however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.25 – Wholesale Merchant Must Keep Records: This section is
repealed; however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.26 – Presumption that Sales are Taxable: This section is rewritten to
reorganize the section and to modernize the language. Two new subsections are
added to address digital property and a service.
( Effective August 7, 2009; SB 202, s. 27A. 3.( p), S. L. 09- 451.)
G. S. 105- 164.27A( a) – Direct pay permit: This subsection is renamed “ General.”
This is amended to clarify that the subsection applies to services and digital property as
well as tangible personal property. The subsection is reorganized by adding ( a1)
regarding direct mail for ease of reading.
( Effective August 7, 2009; SB 202, s. 27A. 3.( q), S. L. 09- 451.)
G. S. 105- 164.28 – Certificate of Resale: This section is amended to replace the
words “ tangible personal property” or “ property” with the words “ an item” or “ item” as
appropriate. This change makes this section generic to what is applicable for resale
under G. S. 105- 164.4( a).
( Effective August 7, 2009; SB 202, s. 27A. 3.( r), S. L. 09- 451.)
G. S. 105- 164.28A( a) – Other exemption certificates: This section is amended to
replace the words “ tangible personal property” or “ property” with the words “ an item” or
“ item” as appropriate. This change makes this section generic to what is applicable for
exemption under G. S. 105- 164.13.
( Effective August 7, 2009; SB 202, s. 27A. 3.( s), S. L. 09- 451.)
34
G. S. 105- 164.29( a) – Application for certificate of registration: This subsection is
rewritten to add “ Before a person may engage in business as a retailer or a wholesale
merchant, the person must obtain a certificate of registration.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( t), S. L. 09- 451.)
G. S. 105- 164.31 – Complete Records Must Be Kept for Three Years: This section is
repealed; however, the requirement is incorporated in G. S. 105- 164.22.
( Effective August 7, 2009; SB 202, s. 27A. 3.( o), S. L. 09- 451.)
G. S. 105- 164.32 – Incorrect returns; estimate: This section is rewritten as follows: “ If
a retailer, a wholesale merchant, or a consumer fails to file a return and pay the tax due
under this Article or files a grossly incorrect, false or fraudulent return, the Secretary
must estimate the tax due and assess the retailer, wholesale merchant, or consumer
based on the estimate.” The new language is to include all items that are taxable under
G. S. 105- 164.4( a).
( Effective August 7, 2009; SB 202, s. 27A. 3.( u), S. L. 09- 451.)
G. S. 105- 164.44E – Transfer to the Dry- Cleaning Solvent Cleanup Fund: This
section is amended to provide for a sunset of the transfer to the Dry- Cleaning Solvent
Cleanup Fund established under G. S. 143- 215.104C an amount equal to fifteen percent
( 15%) from the net State sales and use tax collected under G. S. 105- 164.4( a)( 4). This
section is repealed effective July 1, 2020.
( Effective August 26, 2009; SB 700, s. 8, S. L. 09- 483.)
G. S. 105- 164.44F – Distribution of part of telecommunications taxes to cities: This
section is rewritten to reduce the distributable percentage amounts on
telecommunications service and ancillary service to cities and counties. This is to hold
the State harmless as a result of the temporary one percent ( 1%) increase of the
“ combined general rate” for telecommunications service and ancillary service.
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 202, s. 27A. 2.( c), S. L. 09- 451. Effective July 1, 2011, the reduced distributable
percentage amounts are repealed; SB 202, s. 27A. 2.( c), S. L. 09- 451.)
G. S. 105- 164.44G – Distribution of part of tax on modular homes: This section is
amended to change the formula used to distribute twenty percent ( 20%) of the taxes
under G. S. 105- 164.4( a)( 8) on modular homes. The new formula utilizes G. S. 105- 486
as the basis for distribution instead of G. S. 105- 520, which is repealed effective October
1, 2009.
( Effective October 1, 2009, and applies to distributions made on or after that date; SB
509, s. 15( a), S. L. 09- 445.)
35
G. S. 105- 164.44I – Distribution of part of sales tax on video programming and
telecommunications: This section is rewritten to reduce the distributable percentage
amounts on telecommunications service and video programming service to cities and
counties. This is to hold the State harmless as a result of the temporary one percent
( 1%) increase of the “ combined general rate” for telecommunications service and video
programming service.
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 202, s. 27A. 2.( c), S. L. 09- 451. Effective July 1, 2011, the reduced distributable
percentage amounts are repealed; SB 202, s. 27A. 2.( c), S. L. 09- 451.)
Chapter 323 of the 2007 Session Laws – Transfer for Wildlife Resources
Commission: This act provides that, for the 2007- 2008 and 2008- 2009 fiscal years,
the Secretary of Revenue must make a quarterly transfer from the State sales and use
tax net collections to the State Treasurer for the Wildlife Resources Fund to fund
legislative salary increases for Wildlife Resources Commission employees.
( Effective July 1, 2007; HB 1473, s. 28.15B, S. L. 07- 323.)
LOCAL SALES AND USE TAX
G. S. 105- 472( b)( 3) – Distribution Between Counties and Cities: This is a new
subsection that adds a new method of splitting the net proceeds of the tax collected in a
taxing county. The Combined Method uses both the Per Capita and Ad Valorem
Methods with neither method being used to distribute less than forty percent ( 40%) of
the net proceeds of the tax. The county commissioners decide the percentages of each
method if the combined method is chosen. Onslow County is the only county allowed to
use this new combined method.
( Effective April 29, 2009; HB 63, s. 1 and 2, S. L. 09- 18.)
G. S. 105- 487 – Use of Additional Tax Revenue by Counties: This subsection
amends the length of time requiring a county to reserve thirty percent ( 30%) of revenue
received from this Article for the public school capital outlay fund in each county. The
sunset provision is deleted, ensuring the public outlay fund will continue to be funded at
its current level in perpetuity.
( Effective January 1, 2010 for sales made on or after that date; HB 311, s 1, S. L. 09-
395.)
G. S. 105- 501 – Distribution of Second One- Half Percent Local Sales and Use Tax:
This section alters the method of distributing the proceeds of the second one- half
percent tax from per capita to point of origin. The amount of the net proceeds allocated
to a county is no longer adjusted by the statutory adjustment factors.
36
( Effective October 1, 2009 for distributions for months beginning on or after that date;
HB 1473, s. 31.16.4( b), S. L. 07- 323.)
G. S. 105- 502 – Use of Additional Tax Revenue by Counties: This section amends
the method of determining the amount required to be reserved for the public school
capital outlay fund in each county. As a result of the second one- half percent tax
distribution method changing October 1, 2009, some counties will receive less funds
under G. S. 105- 501. The county must use sixty percent ( 60%) of the amount of
revenue specified in the following: ( 1) The amount of revenue the county receives under
G. S. 105- 501( a). ( 2) If the amount allocated to the county under G. S. 105- 486 is greater
than the amount allocated to the county under G. S. 105- 501( a), the difference between
the two amounts. This new method ensures the public school capital outlay fund is held
harmless as a result of the Medicaid swap.
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 1704, s. 13( a), S. L. 08- 134.)
G. S. 105- 502– ( Effective October 1, 2009) Use of Additional Tax Revenue by
Counties: This subsection amends the length of time requiring a county to reserve
sixty percent ( 60%) of revenue received specified calculation from this Article for the
public school capital outlay fund in each county. The sunset provision is deleted,
ensuring the public outlay fund will continue to be funded at its current level in
perpetuity.
( Effective January 1, 2010 for sales made on or after that date; HB 311, s. 2, S. L. 09-
395.)
G. S. 105- 505 – Local Government Sales and Use Tax for Public Transportation:
This section is amended to add transportation authorities and gives counties an
opportunity to obtain an additional source of revenue with which to meet their needs for
financing local public transportation systems. Previously, only Mecklenburg County had
this opportunity. All such taxes must be approved in a referendum.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 506 – Definitions: This section is amended to add two definitions and amend
another. The term “ Board of trustees” is added as ( 1) and defined as “ the governing
body of a transportation authority.” The term “ Net proceeds” is renumbered from ( 1) to
( 2). The term “ Public transportation system” is renumbered from ( 2) to ( 3) and the
definition is amended to add an interconnected bicycle and pedestrian infrastructure
that supports public transportation as part of a system. The term “ Transportation
authority” is added and defined as “ For the purposes of Parts 3 and 3A of this Article, a
regional public transportation authority created pursuant to Article 26 of Chapter 160A of
the General Statutes; and for the purposes of Parts 3 and 3B of this Article, a regional
37
transportation authority created pursuant to Article 27 of Chapter 160A of the General
Statutes.”
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 507 – Limitations: This section applies to Mecklenburg County only. The
word “ Article” is replaced with “ Part” as a result of Article 43 being separated into
multiple parts.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 508 – Local Election on Adoption: This section applies to Mecklenburg
County only. The word “ Article” is replaced with “ Part” as a result of Article 43 being
separated into multiple parts. In addition, a specific local tax reference is replaced with
a generic local tax reference.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 509 – Levy and Collection: This section applies to Mecklenburg County
only. The word “ Article” is replaced with “ Part” as a result of Article 43 being separated
into multiple parts. In addition, “ this Article” is replaced with “ G. S. 105- 508” as a
technical change.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510 – Distribution and Use of Taxes: This section applies to Mecklenburg
County only. The word “ Article” is replaced with “ Part” as a result of Article 43 being
separated into multiple parts.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S 105- 510.1 – Applicability: This new section applies to Mecklenburg County only.
The word “ section” is replaced with “ Part” as a result of Article 43 being separated into
multiple parts.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.5 – Special Districts: This new section applies to transportation
authorities only. A transportation authority may create a special district as provided in
Part 3A and 3B of this Article along with its specific provisions. The transportation
authority also has filing requirements with the Secretary of State.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.6 – Limitations: This new section applies to transportation authorities
only. A transportation authority may not levy a tax under Part 3A or 3B of this Article
38
unless ( 1) It operates a public transportation system. ( 2) It has developed a financial
plan in conjunction with other requirements listed in this section. ( 3) The tax is approved
by the voters.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.7 – Distribution and Use of Taxes: This new section applies to
transportation authorities only. On a monthly basis the Department will allocate to each
special district the net proceeds of the tax levied under this Part within the special tax
district. A special district must use the net proceeds distributed to it in accordance with
its financial plan adopted pursuant to G. S. 105- 510.6 and use the net proceeds only for
financing, constructing, operating, and maintaining public transportation systems. The
special district shall use the net proceeds to supplement and not to supplant or replace
existing funds or other resources for public transportation systems.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.8 – Local Election on Adoption of Sales and Use Tax: This new
section applies to the Regional Public Transportation Authority ( Triangle) which may
consist of Durham, Orange and Wake Counties. This section provides the procedures
in which a transportation authority may proceed with a resolution to place the levy
question on the ballot. The ballot question is “[ ] For [ ] Against One- half percent
( 1/ 2%) local sales and use taxes, in addition to the current local sales and use taxes, to
be used only for public transportation systems.” The special district created may consist
of one, two, or three of the above counties.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.9 – Levy and Collection of Sales and Use Tax: This new section
applies to the Regional Public Transportation Authority ( Triangle) which may consist of
Durham, Orange and Wake Counties. If the majority of those voting in a referendum
vote for the levy of the tax, then the transportation authority may, by resolution, levy the
one- half percent ( 1/ 2%) tax. In determining the results of a multicounty district, all
counties must receive majority vote in each county. Those counties that pass the
referendum will remain in the special district and those counties that do not pass the
referendum are removed from the special district.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.10 – Local Election on Adoption of Sales and Use Tax: This new
section applies to the Regional Public Transportation Authority ( Triad) which may
consist of Forsyth and Guilford Counties. This section provides for the procedures in
which a transportation authority may proceed with a resolution to place the levy
question on the ballot. The ballot question is “[ ] For [ ] Against One- half percent
( 1/ 2%) local sales and use taxes, in addition to the current local sales and use taxes, to
39
be used only for public transportation systems.” The special district created may consist
of one or two of the above counties.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.11 – Levy and Collection of Sales and Use Tax: This new section
applies to the Regional Public Transportation Authority ( Triad) which may consist of
Forsyth and Guilford Counties. If the majority of those voting in a referendum vote for
the levy of the tax, then the transportation authority may, by resolution, levy the one- half
percent ( 1/ 2%) tax. In determining the results of a multicounty district, all counties must
receive majority vote in each county. Those counties that pass the referendum will
remain in the special district and those counties that do not pass the referendum are
removed from the special district.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.12 – Applicability: This new section applies only in counties other than
Durham, Forsyth, Guilford, Mecklenburg, Orange, or Wake Counties. This is also
applicable to sections 105- 510.13 through 105- 510.16.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.13 – Limitations: This new section applies only in counties other than
Durham, Forsyth, Guilford, Mecklenburg, Orange, or Wake Counties. A county may not
levy the tax under this Part unless the county or at least one unit of local government in
the county operates a public transportation system. Operation of a public transportation
system also includes a contract with a private entity for operation of the public
transportation system.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.14 – Local Election on Adoption of Sales and Use Tax: This new
section applies only in counties other than Durham, Forsyth, Guilford, Mecklenburg,
Orange, or Wake Counties. The board of commissioners may direct the county board
of elections to conduct an advisory referendum subject to specific procedures. The
ballot question is “[ ] For [ ] Against One- quarter percent ( 1/ 4%) local sales and use
taxes, in addition to the current local sales and use taxes, to be used only for public
transportation systems.”
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.15 – Levy and Collection of Sales and Use Tax: This new section
applies only in counties other than Durham, Forsyth, Guilford, Mecklenburg, Orange, or
Wake Counties. If the majority of those voting in a referendum vote for the levy of the
tax, then the board of commissioner of the county may, by resolution, levy the one-quarter
percent ( 1/ 4%) tax.
40
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 510.16 – Distribution and Use of Taxes: This new section applies only in
counties other than Durham, Forsyth, Guilford, Mecklenburg, Orange, or Wake
Counties. On a monthly basis the Department will allocate to each county the net
proceeds of the tax levied under this Part, then the Department will distribute the net
proceeds of the tax by the county on a per capita basis among the county and units of
local government in the county that operate a public transportation system in
conjunction with additional rules. A county or municipality must use the net proceeds
only for financing, constructing, operating, and maintaining public transportation
systems. The county or municipality shall use the net proceeds to supplement and not
to supplant or replace existing funds or other resources for public transportation
systems.
( Effective August 27, 2009; HB 148, s. 2.( b), S. L. 09- 527.)
G. S. 105- 515 through 105- 520 – Third One- Half Percent Local Sales and Use Tax
Repealed: The sections providing for the adoption, levy, administration, and
distribution of the third one- half percent tax are repealed.
( Effective October 1, 2009 for sales occurring on or after that date; HB 1473, s.
31.16.4( a), S. L. 07- 323.)
G. S. 105- 522 – City Hold Harmless for Repealed Local Taxes: This is a new section
providing a municipality that was incorporated on or before October 1, 2008 and
receives a sales and use tax distribution under G. S. 105- 472 receives a hold harmless
amount. The hold harmless amount is 50% of the amount of sales and use tax revenue
distributed for a month to the municipality under Article 40 other than revenue from
sales of qualifying food subject to only the 2% local tax. A county must hold the
municipalities harmless from the repeal of the taxes formerly imposed under Article; the
municipality’s hold harmless amount is to be added to the municipality’s monthly
distribution. The revenue for the hold harmless distribution is obtained by reducing
each county’s monthly allocation under G. S. 105- 472( b) or under the corresponding
provision in the Mecklenburg first one- cent sales tax act by the hold harmless amounts
for the municipalities in that county.
( Effective October 1, 2008 for distributions for months beginning on or after that date;
HB 1473, s. 31.16.3( f), S. L. 07- 323. The calculation of the repealed sales tax amount is
changed for fiscal year 2008- 2009; effective October 1, 2008 for distributions for months
beginning on or after that date; HB 1473, s. 31.16.3( g), S. L. 07- 323. Repealed ( Effective
July 28, 2008; SB 1704, s. 15( b), S. L. 08- 134.) The calculation of the hold harmless
amount is amended; effective October 1, 2009 for distributions for months beginning on
or after that date; HB 1473, s. 31.16.4( c), S. L. 07- 323. Repealed ( Effective July 28,
2008; SB 1704, s. 15( c), S. L. 08- 134.) For the 2009- 2010 fiscal year, further changes
are made in the method of calculating the repealed sales tax amount; effective October
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1, 2009; HB 1473, s. 31.16.4( e), S. L. 07- 323. Repealed ( Effective July 28, 2008; SB
1704, s. 15( e), S. L. 08- 134.) Further revisions are made in the method of calculating
the hold harmless amount; effective October 1, 2009 for distributions for months
beginning on or after that date; HB 714, s. 14.4( a), S. L. 07- 345.) Repealed ( Effective
July 28, 2008; SB 1704, s. 15( f), S. L. 08- 134.)
G. S. 105- 522( a)( 2) – City Hold Harmless for Repealed Local Taxes: This amends
the city hold harmless calculation to match the formulas used in the tables that calculate
the impact of the “ Medicaid swap”. The new calculation is the sum of ( a.) the amount
allocated under G. S. 105- 486 ( Article 40) and ( b.) amount determined by subtracting
twenty- five percent ( 25%) of G. S. 105- 472 ( Article 39) or Chapter 1096 of the 1967
Session Laws from fifty percent ( 50%) of G. S. 105- 486 ( Article 40).
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 1704, s. 15( g), S. L. 08- 134.)
G. S. 105- 523 – County Hold Harmless for Repealed Local Taxes: This is a new
section requiring the Secretary to make hold harmless payments to a county if the
“ repealed sales tax amount” for a fiscal year exceeds the county’s “ hold harmless
threshold.” These terms are defined in this section. To determine if the county is
eligible for a hold harmless payment, the Secretary must estimate a county’s repealed
sales tax amount and hold harmless threshold for a fiscal year and must send an
eligible county 90% of its estimated hold harmless payment with the monthly distribution
made under G. S. 105- 472 for March of that year. At the end of each fiscal year, the
Secretary is required to determine the difference between a county’s repealed sales tax
amount and its hold harmless threshold for that year and send the remainder of the
county’s hold harmless payment for the fiscal year ended June 30 by August 15. The
intent of this section is that each county benefit by at least $ 500,000 annually from the
exchange of a portion of the local sales and use taxes for the State’s assumption of
responsibility for the non- administrative costs of Medicaid.
( Effective October 1, 2008 for distributions for months beginning on or after that date;
HB 1473, s. 31.16.3( f), S. L. 07- 323. The calculation of the repealed sales tax amount is
changed for fiscal year 2008- 2009; effective October 1, 2008 for distributions for months
beginning on or after that date; HB 1473, s. 31.16.3( g), S. L. 07- 323. Repealed ( Effective
July 28, 2008; SB 1704, s. 15( b), S. L. 08- 134.) The calculation of the hold harmless
amount is amended; effective October 1, 2009 for distributions for months beginning on
or after that date; HB 1473, s. 31.16.4( d), S. L. 07- 323. Repealed ( Effective July 28,
2008; SB 1704, s. 15( d), S. L. 08- 134.) For the 2009- 2010 fiscal year, further changes
are made in the method of calculating the repealed sales tax amount; effective October
1, 2009; HB 1473, s. 31.16.4( e), S. L. 07- 323. Repealed ( Effective July 28, 2008; SB
1704, s. 15( e), S. L. 08- 134.) Further revisions are made in the method of calculating
the repealed sales tax amount; effective October 1, 2009 for distributions for months
beginning on or after that date; HB 714, s. 14.4( b), S. L. 07- 345.) Repealed ( Effective
July 28, 2008; SB 1704, s. 15( f), S. L. 08- 134.)
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G. S. 105- 523( b)( 2) – County Hold Harmless for Repealed Local Taxes: This amends
the definition of “ Hold Harmless Threshold” to ensure that a county’s Medicaid service
costs for the fiscal years 2008- 2009, 2009- 2010, and 2010- 2011 are determined without
regard to the changes made to the Federal Medical Assistance Percentage by section
5001 of the American Recovery and Reinvestment Act of 2009.
( Effective July 31, 2009 and applies to distributions for months beginning on or after
October 1, 2008; HB 102, s. 4.( a), S. L. 09- 399.)
G. S. 105- 523( b)( 3) – County Hold Harmless for Repealed Local Taxes: This
amends the county hold harmless calculation to match the formulas used in the tables
that calculate the impact of the “ Medicaid swap”. The new calculation is the sum of
subdivision ( a.) the amount allocated under G. S. 105- 486 ( Article 40) and subdivision
( b.) amount determined by subtracting twenty- five percent ( 25%) of G. S. 105- 472
( Article 39) or Chapter 1096 of the 1967 Session Laws from fifty percent ( 50%) of G. S.
105- 486 ( Article 40).
( Effective October 1, 2009 for distributions for months beginning on or after that date;
SB 1704, s. 15( h), S. L. 08- 134.)
G. S. 105- 538 – Administration of Taxes: A technical amendment is made to this
section to clarify that sales of a bundled transaction taxable pursuant to G. S. 105-
467( a)( 5a) does not apply to Article 46. Furthermore, language that referred to the
2008 calendar is repealed.
( Effective August 7, 2009; SB 509, s. 16, S. L. 09- 445.)
Chapter 323 of the 2007 Session Laws – Reduction of Third One- Half Percent
Local Sales and Use Tax: As a result of the State’s assumption of Medicaid
responsibilities for the counties, this act reduces the one- half percent ( ½ %) sales and
use tax authorized under Article 44 of Chapter 105 of the General Statutes to one-quarter
percent ( ¼ %). No action is required of the county; a resolution enacted by the
county to levy the one- half percent tax is considered to be a resolution authorizing the
levy of the one- quarter percent tax. The one- quarter percent reduction is offset by a
one- quarter percent increase in the State general rate of sales and use tax.
( Effective October 1, 2008 for sales occurring on or after that date; HB 1473, s.
31.16.3( a), S. L 07- 323. The remaining one- quarter percent ( ¼ %) local tax under Article
44 is repealed; effective October 1, 2009 for sales occurring on or after that date; HB
1473, s. 31.16.4( a), S. L. 07- 323.)
Chapter 323 of the 2007 Session Laws – Article 44 Title: The title of Article 44 is
changed from “ Third One- Half Cent Local Government Sales and Use Tax” to “ Local
Government Hold Harmless Provisions” as a result of the repeal of the third one- half
percent local tax.
43
( Effective October 1, 2009; HB 1473, s. 31.16.4( f), S. L. 07- 323.)
Chapter 1096 of the Session Laws, as Amended – Mecklenburg First 1% Sales
Tax Act: The division is amended to tie the levy, collection, administration, and repeal
of this tax to Article 39 of Chapter 105 of the General Statutes, except as provided
differently in this division. This amendment is an effort to allow all future changes to the
Article 5 and Article 39 to flow into this division. In the past all changes were required to
be duplicated into this division. Language that can be replaced by the “ catch all” is
repealed. In addition, clarifying language is added to ensure the division of the net
proceeds of the tax collected on items other than food between Mecklenburg County
and its municipalities are in accordance with the ad valorem distribution method
described in G. S. 105- 164- 472( b)( 2).
( Effective August 7, 2009; SB 509, s. 19, S. L. 09- 445)
HIGHWAY USE TAX – ARTICLE 5A
G. S. 105- 187.3( b1) – Retail Value: This new subsection is addresses the retail value
of Department of Defense Vehicles. The retail value of a vehicle for which a certificate
of title is issued because of a transfer by a State agency that assists the United States
Department of Defense with purchasing, transferring, or titling a vehicle to another State
agency, a unit of local government, a volunteer fire department, or a volunteer rescue
squad is the sales price paid by the State agency, unit of local government, volunteer
fire department, or volunteer rescue squad.
( Effective August 28, 2009; HB 274, s. 2.( e), S. L. 09- 550.)
G. S. 105- 187.6( a) – Exemptions: This subsection is rewritten to add an exemption
from highway use tax when a unit of local government, volunteer fire department, or
volunteer rescue squad transfers title of a motor vehicle to a State agency to enable that
State agency to transfer that same vehicle to another unit of local government,
volunteer fire department, or volunteer rescue squad.
( Effective June 11, 2009; HB 201, s. 2, S. L. 09- 81.)
G. S. 105- 187.6( a) 7 – Exemptions: The exemption for a transfer of a motor vehicle to a
handicapped person from the Department of Health and Human Services after the
vehicle had been equipped by the Department for use by the handicapped is repealed.
( Effective August 7, 2009; SB 509, s. 16, S. L. 09- 445.)
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SCRAP TIRE DISPOSAL TAX – ARTICLE 5B
G. S. 105- 187.19( b) – Use of Scrap Tire Tax Proceeds: This subsection is amended
to reduce the net proceeds credited to the Scrap Tire Disposal Account from twenty- two
percent ( 22%) to seventeen percent ( 17%). In addition, two new funds are added to the
Scrap Tire Distribution. The Inactive Hazardous Sites Cleanup Fund will be credited
two and one- half percent ( 2.5%) of the net proceeds. The Bernard Allen Memorial
Emergency Drinking Water Fund will be credited two and one- half percent ( 2.5%) of the
net proceeds.
( Effective August 7, 2009; SB 202, s. 13.3B.( a), S. L. 09- 451.)
DRY- CLEANING SOLVENT TAX – ARTICLE 5D
G. S. 105- 187.35 – Sunset of Dry- Cleaning Solvent Tax: This section is added to
establish a sunset for Article 5D. The sunset is extended to January 1, 2020. In S. L.
1997- 392, which enacted Article 5D the repeal date of January 1, 2010, had been
established.
( Effective August 26, 2009; SB 700, s. 8, S. L. 09- 483.)
MANUFACTURING FUEL AND CERTAIN MACHINERY AND
EQUIPMENT – ARTICLE 5F
G. S. 105- 187.50 – Definitions: The term “ concurrently maintainable” is repealed. The
term “ eligible datacenter” is rewritten to only include subdivision “ b.” and “ c.” The term
“ multiple distribution paths” is repealed. The term “ redundant capacity components” is
repealed. Under G. S. 105- 164.3( 5c) “ datacenter” is defined. This definition
incorporates all repealed definitions listed above and all items removed from the term
“ eligible datacenter.”
( Effective August 7, 2009; SB 202, s. 27A. 3.( v), S. L. 09- 451)
G. S. 105- 187.51A – Privilege Tax on Manufacturing Fuel: This section is rewritten to
reflect a reduction in the privilege tax rate imposed on a manufacturing industry or plant
that purchases fuel to operate the industry or plant. The rate is reduced from one
percent ( 1%) to seven- tenths percent ( 0.7%).
( Effective October 1, 2007 for fuel purchased on or after that date; SB 3, s. 12( a), S. L.
07- 397. The rate is reduced from 0.7% to 0.5%; effective July 1, 2008 for fuel
purchased on or after that date; SB 3, s. 12( b), S. L. 07- 397. The rate is further reduced
from 0.5% to 0.3%; effective July 1, 2009 for fuel purchased on or after that date; SB 3,
45
s. 12( c), S. L. 07- 397. The section is repealed and purchases of fuel by manufacturers
are exempt from tax; effective July 1, 2010; SB 3, s. 12( d), S. L. 07- 397.)
G. S. 105- 187.51C( c) – Forfeiture of Privilege Tax Imposed on Datacenter
Machinery and Equipment: This subdivision is revised to replace some statutory
references that were repealed. Currently, in the event of forfeiture, a credit of privilege
tax is allowed against the additional sales and use tax due. For clarification, the credit
will reduce the amount forfeited, and the interest applies only to the reduced amount.
( Effective August 7, 2009; SB 509, s. 17, S. L. 09- 445.)
SOLID WASTE DISPOSAL TAX – ARTICLE 5G
G. S. 105- 187.63 – Use of Solid Waste Disposal Tax Proceeds: This section is
amended to exclude from the distribution a city or county who is served by a regional
solid waste management authority established under Article 22 from the Solid Waste
Disposal Tax distribution.
( Effective August 26, 2009; SB 838, s. 4, S. L. 09- 484.)
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PROPERTY TAX
Property Tax
G. S. 105- 273( 3a) — Definition of Builder:
Defines “ builder” as a taxpayer licensed as a general contractor under G. S. 87- 1 and
engaged in the business of buying real property, making improvements to it and then
reselling it.
( Effective for taxes imposed for taxable years beginning on or after July 1, 2009;
Repealed effective for taxes imposed for taxable years beginning July 1, 2013; HB 852,
s. 1, S. L. 2009- 308.)
G. S. 105- 273( 6) — Definition of Corporation: Adds a new section which defines a
corporation as an organization having capital stock represented by shares or an
incorporated, nonprofit organization.
( Effective August 4, 2009; SB 509, s. 20, S. L. 2009- 445.)
G. S. 105- 275 — Property Classified and Excluded From the Tax Base:
Makes technical change to the language.
( Effective August 4, 2009; SB 509, s. 21, S. L. 2009- 445.)
G. S. 105- 277.1( d) — Homestead Exclusion:
Removes the term “ as tenants by the entirety” as it relates to husband and wife. Treats
all types of husband and wife ownership the same for the exclusion.
( Effective for taxes imposed for taxable years beginning on or after January 1, 2009; SB
509, s. 22 ( a), S. L. 2009- 445.)
G. S. 105- 277.1B — Property Tax Homestead Circuit Breaker:
Clarifies the language as follows:
1. Changes the requirement that the owner must owned and occupied the
property as a permanent residence for at least five consecutive years to
the requirement that the owner has owned the residence for five
consecutive years and has occupied the property for at least five years.
Makes other technical changes to the ownership and occupancy
requirement.
SECTION 4
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2. Makes it clear that the taxpayer can only defer the principal amount of the
tax for the current year.
3. Clears up the deferred taxes language.
4. Makes it clear that the tax collector only has to send notice of deferred
taxes to the mailing address of the residence on which the taxes of been
deferred.
( Effective for taxes imposed for taxable years beginning on or after January 1, 2009; SB
509, s. 22( b), S. L. 2009- 445.)
G. S. 105- 277.1C — Disabled Veteran Property Tax Homestead Exclusion:
Clarifies the language as follows:
1. Clarifies the definition of a disabled veteran to include all veterans whose
service at separation was honorable or under honorable conditions.
2. Changes the language concerning a surviving spouse